I bought the Preferred Term Plan from Kotak four years ago. Now, we have better e-term plans in market. Last year, I was relocated abroad by my employer. Is it possible for me to switch from a traditional term plan to an e-term plan? If not, do companies offer e-term plans to NRIs?
You cannot switch your plan. You can, however, take a fresh e-term plan if the premium is lower than the existing premium. You may have to undergo a fresh medical checkup. You may like to have a look at the claim rejection ratio of the new company also before taking the policy. The premium payment of existing policy should be discontinued only after a fresh policy is received. Term plans can not be issued to NRIs as such, but they can buy a policy when they are in India.
Over the last 10 years, I purchased mutual funds from different companies. This year, I redeemed almost all of them. All the mutual funds were redeemed after one year of purchase and Security Transaction Tax was paid. On some mutual funds, there was gain, while on others there was loss. But there is net gain in my hands. Will I be liable to tax on the gross gain or will indexing will be allowed?
To determine your tax liability, more information is required in respect of type of schemes — debt, equity, liquid and the period of holding, i.e, less than a year or more. For example, in case of equity schemes, there will be no tax if it is held for more than a year and there will be 15% tax if held for less than a year. Indexation is available in case of debt schemes and not in equity.
What are the factors I should look at before buying a child policy? What should be the sum assured of the policy as my son is five years old?
P N Rao
A child policy is a combination of insurance and investment. The return in case of child endowment policies is not more than 7-8%. In a linked child policy, the return is linked to the market return on debt or equity, depending on the option chosen.
In a child policy, the life assured is the parent. The premium waiver rider is available invariably in all child policies, in which case the future premiums are waived in case of the demise of the life assured. It is advisable to separate insurance and investment. You can take a term policy with waiver of premium rider and invest in mutual funds to maximise benefit and return. The sum assured will depend on the future cost of need of the child— education, marriage, etc.
How do deductibles work in health insurance policy?
In an insurance policy, the deductible is the amount of expenses that must be paid out of one’s pocket. The balance is paid by the insurer in case of a claim. The policy becomes cheaper if deductibles are opted for. A company can also reduce the claim burden. For example, if the sum assured is R5 lakh with a deductible amount of R50,000 and the claim is R2 lakh, the company will pay a claim of R1.50 lakh only. Top-up policies are cheaper and are becoming popular due to deductibles.
The author is chief financial planner with Max Secure Financial Planners. Send your queries at firstname.lastname@example.org