How to Save Tax With Insurance

We all give considerable thought to tax saving. This is an important aspect of financial planning. We’ll give you a quick guide to understanding how to save taxes with insurance products.

Life Insurance 

Life Insurance is an integral part of your financial portfolio. A Life Insurance plan is your family’s financial safety net in your absence.

There are different Life Insurance plans available ranging from term plans, whole life plans and money-back plans to unit-linked plans and endowment plans.

Additional Reading: No-brainers before you take Insurance

Different Life Insurance Plans. One Benefit.

All Life Insurance plans have one major benefit. Tax saving.

You can claim tax deductions on the premium that you pay for your policies.

More about the Tax Benefits of Life Insurance 

You can claim deductions up to Rs. 1,50,000 on your Life Insurance policies under Section 80C of the Income Tax Act.

My policy has matured. Do I get a tax deduction?

Yes. Under Section 10D of the Income Tax Act, any sum that you receive from a Life Insurance policy, including any amount through a bonus will be exempt from tax.

Pension Plans

Pension plans are another type of Life Insurance. Here’s the difference. While the objective of Life Insurance is to protect your family after your demise, pension plans give you and your family an income during your retirement years.

Additional Reading: Tax saving with the National Pension System

How Pension Plans Work

There are two stages in a pension plan. The accumulation stage is when you put aside money while you are earning. Your retirement is when you get to enjoy the withdrawals phase.

Tax Benefits of Pension Plans

You can enjoy tax benefits on pension plans only in the accumulation phase.

A maximum deduction of Rs. 1,00,000 can be claimed under Section 80CCC of the Income Tax Act.

Tax Benefits on Maturity of Pension Plans

When your Retirement Pension Plan matures, 1/3rd of the total amount is exempt from tax.

The remaining 2/3rd portion is considered as income and is taxable.

The total amount is exempt from tax on the beneficiary’s death.

Health Insurance or MediClaim

A Health Insurance policy gives you tax benefits and is a useful tax saving investment option.

Additional Reading: Lesser Known Tax Saving Tips

How is Health Insurance beneficial as a tax saving option?

We’ll make it simple with an example. If you pay Rs. 25,000 as the premium on your own policy and Rs. 30,000 for your senior citizen parent, you can claim a tax benefit of Rs. 25,000 + Rs. 30,000 which is a total amount of Rs. 55,000.

Senior citizens can claim Rs. 30,000 and others can claim Rs. 25,000 as tax deductions under Section 80D of the Income Tax Act.

The maturity amount received under a critical illness policy is exempt from tax.

So there you have the various tax saving options with insurance policies.

7 Common Employer-Sponsored Retirement Plans

There is an assumption by many people that employer-sponsored retirement plans are generic. The fact is that there are several types of retirement plans which an employee can operate with an aim of saving for retirement.

Choice of retirement plans:

Your choice of a Retirement Plan Company is determined by several factors about your employer such as, what economic sector the employer is involved with as well as the size and type of that employer.

An employer-sponsored plan for saving towards retirement can be used by both the employee and the employer. By having money directly deducted from the pay check, both parties get a chance to save even before they start on spending the pay check. Some employers even go an extra step of matching their employees’ contribution, something you wouldn’t mind, now would you? Plus this will definitely act as a direct incentive to save more.

The seven most popular employer-sponsored retirement plans and their features are:

1. SEP Plan (Simplified Employee Pension)

This retirement option is mostly offered by small businesses to their employees.

As an employee you can also set up one yourself.

Typically known as a SEP-IRA plan, it is based on Individual Retirement Accounts.

Annual contribution limit is pegged at 53,000 dollars.

2. SIMPLE Plan (Savings Incentive Match Plan for Employees)

Offered by small employers to their employees.

As an employee you contribute an amount of your choice and your employer can match that amount up to 3% of your salary.

There is a limit to how much contribution one can make in a year, for instance, for 2016, it stands at 12,500 dollars. If one is 50 years and above, there is a provision for a ‘catch-up’ contribution which also has a limit ($3,000 for 2016).

3. 401(k) Plan

Is mostly offered by large businesses.

It is funded by an employee but the employer may also contribute a matching amount.

The account is wholly managed by the employee including choice of how to invest the funds. These contributions are usually tax-deferred up until the time withdrawal is done at retirement age.

If the funds are withdrawn before retirement, one is penalized.

There is a limit to how much one can contribute annually, for instance the limit for 2016 is 18,000 dollars.

4. Roth 401(k) plan

The benefits are the same as with a Roth IRA and the contributions by an employee are similar with a 401(k) plan.

Employee contribution limits are also the same as those of a 401(k) plan, which is better than for a Roth IRA.

Any contribution into this plan is not tax-deductible.

All earnings accumulate tax.

5. 403(b) Plan

This is identical to the 401(k) plan save for the fact that it is designed for NGOs.

403(b) Plans are funded by employees primarily with tax-deductible contributions.

Employers can match contributions but to a certain percentage.

Contribution limits are the same as those of 401(k) plans with earnings accumulating on a tax-deferred basis.

6. 457 Plan

These plans are similar to 401(k) plans and are offered to local and state government employees.

They have identical characteristics with 401(k) plans including contribution limits.

The main difference is that if an employer offers both a 401(k) Plan and a 457 Plan, as an employee you can contribute fully to both plans hence the benefit of a doubled limit.

7. Defined Benefits Pension Plan

The plan is also known as a traditional retirement plan.

It was more common in the 1970s.

The plan is controlled fully by the employer and the employee has no control at all over the funds. The employer is responsible for supplying the employees’ contribution and the monthly benefit given to him/her.

Plan Your Retirement The Smart Way!

Staying young is everyone’s eternal dream, but the harsh reality of life is that old age is inevitable. Hence it important to plan it well in advance so that one can live stress-free during the golden years of one’s life. Old age brings with it its own share of medical problems that mostly don’t have any cure except managing them and learning to live with them. And such unpleasant surprises always cost a lot of money. For those elderly who retire with the expectation that they will survive with their modest savings and decent amount of pension come in for a rude shock when a medical calamity falls on them and most of their savings are spent on getting the basic possible medical treatment.

You may wonder then what the solution is for this problem! Especially when you are nearing retirement and you still haven’t made any plans!

The answer is simple: invest in a senior citizen health insurance plan.

The best thing about it is that as per the IRDA guidelines, the insurance companies have to provide insurance to a person up to the age of 65 years old! And such plans cover you for the period between 65-80 years of age! Sounds interesting?

Yes, it is! The reason being all insurance companies have various plans to offer you so that you can buy a policy that meets your requirements. And there lies the catch: to find out the best policy and the best insurance company so that you don’t have to suffer due to inadequate insurance coverage or poor customer service.

How To Go About It?

Even though there are a host of insurance agents to help you out with, the best thing to do before approaching them is to do your own research. There are websites that act as a platform to display all insurance products by all insurance companies at the same place. This way, you can find out about various plans, do a comparative analysis about their terms and conditions, benefits offered, insurance coverage and premium due. Once you have shortlisted a couple of plans, then you can consult the concerned companies to clear your doubts and get more information before you zero down on the best plan that fits your criteria.

Things To Consider While Selecting A Plan

The important factors to keep in mind while checking out various plans are:

A) Insurance Cover: do check what the insurance cover is offered to you based on your age, per-existing diseases etc. Obviously, select the one that offers you maximum cover with least amount of premium along with the best benefits out of all.

B) Maximum Age At Renewability: This is an important factor so that the policy doesn’t lapse before you get to utilise it.

C) Co-Payment: Check out how much is the co-payment. This is mostly charged to ensure that people don’t misuse the insurance policy by going for medical treatments that are not necessary!

D) Diseases Covered: This part has to be studied in full keeping in mind the diseases you are suffering from and the ones you’re genetically inclined to suffer in later ages. Only take the policy that covers all major diseases so that you’re not denied claim later on.

E) Waiting Period: Every policy comes into effect after a waiting period that varies from company to company. Hence, find out when your policy will come into effect so that you don’t miss out on getting the medical claim.

What Are The Benefits Of Having Such A Plan?

This Retirement Plans offers a host of benefits that can make your life really easy:

A) The complete hospitalization is taken care of by the insurance policy provided you have bought an adequate cover for it.  The only condition being that you need to be hospitalized for more than 24hours.

B) Expenses incurred during pre and post hospitalization are also provided for by the insurance company except the number of days being covered will be different for each insurance provider.

C) Even those expenses are covered that don’t require you to be hospitalized for more than 24 hours, but involve procedures like chemotherapy, dialysis etc.

D) A lot of companies cover per-existing diseases as well, but you have to read the fine print to know the exact details.

E) Tax benefits are also to be derived out of buying an insurance policy. You can claim such expenses and get rebates on them.

As you can see, having a senior citizen health insurance policy can work wonders for you and help you to meet the medical costs without any hassles. The only thing you have to do is to plan about it right now so that you can gain maximum benefits out of it. Starting early will ensure you pay less premium compared to those who buy a policy near their retirement age.

Choosing a Retirement Plan: Is a Defined Benefit Plan Right for You?

Making decisions about how you are going to pay for retirement can be daunting. There are many options available to you and each has the ability to have a significant impact on the way you enjoy your time after you stop working. While some plans have been phased out by certain sectors of the workforce, for those who have access to a defined benefit plan, take advantage of your employer contributions while still adding part of your income to a different account.

What Is a Defined Benefit Plan?

A defined benefit plan is also known as a qualified benefit plan or pension. It is an employer-sponsored retirement plan where employees receive a fixed amount based on their duration of employment and salary history.

An equation is used to factor in different elements of a person’s employment and most likely does not require any contribution by the worker. Any investments and the management of the portfolio is controlled solely by the company. Defined benefit plans have been scaled back in recent years due to their cost and how complex they are to maintain administratively.

What Makes It Different?

This plan differs from other Retirement Plan Company options in that if the determined payout amount cannot be met by the profit from investment, the company must cover the difference to make sure the employee receives the amount agreed upon.

There are limitations on the amount that can be paid out to beneficiaries which means it should not be used as a primary source of income. When enrolling in a defined benefit plan, pay attention to the restrictions on withdrawing your earnings and the resulting penalties. Defined benefit plans are known for having strict guidelines and you do not want to sacrifice some of your income because you were not informed.

Not all companies still offer defined benefit plans to their employees but if yours does, consider making it an addition to your retirement. 

Source: http://blog.ctrust.com/choosing-a-retirement-plan-is-a-defined-benefit-plan-right-for-you      

Perspective on Retirement Planning

Early planning for retirement is imperative in today’s age wherein advancements in medical science have helped increase life expectancy. In addition, a wide choice of career options and a fast paced life has evoked the thought of early retirement in the minds of the younger generation. With increased longevity and the urge to maintain a similar lifestyle in one’s post retirement phase as well, the need for appropriate retirement planning is an imperative.

According to Life Value Notes Life Freedom Index, a survey conducted in 11 tier 1 and tier 2 cities to understand the current state of financial planning in urban India, consumers are skeptical about the adequacy of their financial plans to meet their desired standard of living throughout their lifetime. In fact, only 13% of youth and women are extremely confident that they have adequate retirement planning in place. Though the Wisdom investor segment (45 years and above) scored better in the level of confidence yet their percentage stood at only 24%.

The study clearly points out that while we postpone a lot of simple joys of life to our retirement period, we do not adequately prepare ourselves during the prime time of our working lives to focus on building a war chest. These joys could range from travelling to cherished destinations to owning much coveted luxury goods or simply indulging in an expensive hobby.

In the absence of a formal social security framework in our country and inadequate statutory retirement funding (by both employers and self), there is a greater need to evaluate in advance the options available for Retirement Insurance Policy. A clear definition of our retirement needs is the first step towards adequate provisioning for retirement. The answer to this lies in two basic questions – “HOW MUCH MONEY would we need when we retire?” and “WHAT PART OF OUR INCOME should be invested towards building that corpus?”

Financial Strength After Your Retirement

The evolution process of humans tends to start from the early years through the prism of childhood up till the last Lear of human life. The whole cycle of growth goes through many stages wherein every stage has its own importance. Being dependent on others for everyday work is what is looked upon while in early days of childhood. Old age also brings a stage where the wheel of time turns to bringing the dependency back in one’s life. A person spends literally all his life to have financial stability and satisfy interpersonal goals. Professionally and in personal life people toil hard to strive the best and be ahead of others. For people who have lived life independently and have been financially secure, it’s quite hard to depend on others for any financial issues. Mostly the trend of dependency is being seen to be on the rise after retirement. People after retiring mostly don’t have source of income and thus become financially dependent on others for sustaining.

While still working people usually tend to overlook the reality of old age financial crisis. People believe that it’s still afar and something would be looked into for the same. We need to look around us and see how life turns up to be for people who do not have a source of income after retirement. We need to learn from their experiences and be prepared for the later stage of life. We may be young but, would we be forever? Being financially independent in present times its important the concept of investing is well understood. Insurance is the best source of investment which can be considered much futuristic.

Providing various benefits for the same, Pension plans are drafted to the best of the financially dependent people after retirement plans. Paying a monthly, bi annually, annually premium every year, an investment is secured for the future. The premiums are fixed de-pending upon age, financial background, and years to service and so on. A person is availed the benefits of the policy after retirement subject to regular payment of premium. An option of withdrawing lump sum amount for any emergency is also available under such policies depending upon the terms of the policy.

 Various insurance providers sketch a plan keeping in mind the need of the insured.

In worst case scenario, if the insured dies during the span of the policy, the benefits of pension plan goes to the beneficiary. In any case, Insurance plan works as a saviour to any financial aspect which may include you or the family.

Comparing policies and then opting for one is a wise man`s way. To compare the policies of leading insurance brands in just 7 blinks of your eye, one should visit PolicyX web portal. The website has been nominated as one of the best insurance comparing sites in India. This indeed provides a platform to trust the authenticity of the results.

RETIREMENT’S SHIFT: DIFFERENT STAGES FOR DIFFERENT AGES

He UK population is ageing. Data published by the ONS in 2015 show that the UK population of over 65s has grown by 47% in the last forty years to make up nearly 18% of the total. And the number of people aged 75 and over has increased by 89% in the same time period. The most common age at death was 86 for men and 89 for women in 2011–2013.

Assuming retirement is taken at 65, the average retiree has 18 to 20 years ahead of them. During this time they may go from good health to poor, or from complete independence to full time care. Exactly what will happen over the next two decades is uncertain. However, their retirement is unlikely to remain static and will be comprised of different phases, reflecting this time of great change in their life.

A dynamic retirement model

Today’s typical retirement may be broken down into four distinct stages:

Pre-retirement. Retirees may ease themselves into retirement by working reduced hours at their current job. Depending upon individual circumstances, they may cut back their hours in their early to mid-60s. Retirement Plans continues to contribute towards their pension and pay for life cover.

Bucket-list years. At about 68 years old, people leave their employment to do all the things that were difficult when they were working. Travel is likely to rank highly amongst their plans; 82% of over-60s cited travel as a goal in early retirement.* Their lifestyle may be quite expensive and they’ll need a lump sum to fund significant purchases.

Traditional retirement. At about 73, the retiree starts to slow down and her lifestyle starts to resemble the classic ‘pensioner’. This group is unlikely to work, but will take part in leisure activities. Living expenses will be lower than in the previous phase.

Care years. Later on, from about 82 years onward, the likelihood of poor health and loss of independence increases, and the retiree may need full or part-time care; in 2009, over two-thirds of people over 85 had a disability or longstanding illness*. Living expenses will be modest, but care expenses could be high, with uncertainty over how long remaining funds will have to last.

Retirement is no longer a single life event with a one-time decision on how to use accumulated funds at 65 years old. Rather, it can be viewed as a set of discrete retirements, with each phase demanding its own level of income.

Meeting the needs of today’s retiree

The freedom of choice now available to those at retirement age has left many people with access to considerable capital – but they’re unsure what to do with it.

At Sapiens, we believe that an open-minded view of a modern, dynamic retirement presents an opportunity for providers to step up and deliver much-needed support to retirees. Those providers who have developed a portfolio of products to meet clients’ changing financial needs will have an advantage. In addition, those who have a policy administration system that allows for product flexibility and rapid new product generation will be in the best position to meet the high expectations of today’s retiree.

Want to know more?

Sapiens International Corporation (NASDAQ and TASE: SPNS) is a leading global provider of software solutions for the insurance industry. Sapiens ALIS is our flagship solution designed to enable insurance providers to quickly and efficiently address the challenges of a highly regulated and increasingly competitive marketplace. Contact me for more information.

Source: http://blog.sapiens.com/ages-and-stages-retirements-shift-to-multi/