Mr. Mehta was very happy with his job, his family and life in general.

He was very particular with his finances. His 8 year old daughter and 9 year old son were doing well in one of the best schools in India and his wife had the financial comfort she wanted. However, Mr. Mehta will concur that one can never tell when fate will tarnish a pretty picture. He suddenly suffered a heart attack, with a few complications, and was admitted to the hospital. Three weeks in the ICU and an angiography and angioplasty struck him with a serious financial blow. His modest medical insurance covered some of his expenses but he had to dip into his savings for the rest. He thought his current financial plan was solid, but he was wrong. What if the next time his medical expenses are even higher? What about the money he has to keep aside for his daughters wedding, or his sons higher studies? What if he doesnt pull through the next time? Who will take care of his family and support them financially? Another disaster like this will destroy his long term savings plans. That was it! He had to re-assess his financial structure. Statistics showed him that if he saved a little money every month in a life insurance policy he would be in an even better position to deal with any unforeseen setbacks in the future. His family will have financial security if he isnt lucky enough to survive the next time. He also decided to take into consideration the expenses for his childrens higher studies and marriage. Mr. Mehta was thinking very clearly in the long term now. Although we dont want to think of these situations, preparing for them with the right financial planning will only help our long term goals. Mr. Mehta realised this the hard way. Luckily, we have the chance to learn from his mistake and better prepare ourselves from now for an uncertain future.

When Mr. Mehta decided to get life insurance to protect himself and his family he had to be sure he was choosing the right policy. He had to buy a life insurance policy that caters to his needs, as well as his sons education needs and his daughter's marriage expenses. He was clear about that. These decisions could not be taken lightly anymore. When he was faced with his own mortality it gave him the push he needed to save wisely and save for the future. His life insurance company helped him derive a formula that best suited his requirements and the requirements he has for his children. The various policies he could choose from are listed below:

Types of insurance.
Term Insurance This type of policy is a contract between the insured and the life insurance company to pay the persons s/he has given entitlement to receive the money, in the case of his/her death, after a certain period of time. The policies can be taken for 5, 10, 15, 20 or 30 years. Endowment In an endowment policy, periodic premiums are received by the insured person and a lump sum is received either on the death of the insured or once the policy period expires. Money Back

This policy offers the payment of partial survival benefits (money back), as is determined in the insurance contract, while the insured is still alive. In case the insured dies during the period of the policy, the beneficiary gets the full sum insured without the deduction of the money back amount given so far. Group Life Insurance This is when a group of people have been named under a single Life insurance policy. It is popular for an employer or a company to add employees under the same policy. Each member of the group has a certificate as legal evidence of insurance. Unit Linked Insurance ULIPs (Unit Linked Insurance Plan) offer the insured the double benefit of protection from risk and investment opportunities. ULIPs are linked to the market where the insureds money is invested to help earn additional monetary benefits.

How much the insurance is needed

So how much insurance does Mr. Mehta really need when he is taking a life insurance policy? How much money should he put aside now to receive the right benefit for his childrens higher studies? How much should he save now to receive the right benefit for his daughters marriage? How much does he want his family to get as a benefit in case of his untimely demise? He has to consider his priorities. He has to take into account his standard of living, his income, his spending habits, inflation etc. before he arrives at the benefit he wishes his family to receive at the time of his death. This policy should also have a critical illnessand disability rider to help in case of his hospitalization and medical expenses. Amazing, how everything was in such clear view to Mr. Mehta. Usually, wisdoms advice is that the death benefit from a life insurance policy should be approximately 8 to 10 times the annual income of the insured. It is wise to include foreseen liabilities and add an inflation rate into the amount to get a more accurate figure. He also has to decide how much he expects to receive for his childrens higher education. He has to factor in what his childrens career inclinations are, what type of college he wants his children to attend, whether he wants his children to study in India or abroad, etc. In addition, he has to decide what he will have to spend on his daughters marriage. No one can ever get exact figures, but it is important to draw a fair sketch of your future financial goals and save according to them. You may not get it absolutely right, but long term planning, as Mr. Mehta realised, definitely keep you prepared. Mr. Mehta knows thatone rupee saved now is worth many more in the future. Fortunately, Mr. Mehta had trained professionals to help him beat out all his considerations and invest in life insurance to suit his future needs and wants. So Mr. Mehta has now prepared himself much better for an unforeseen future. It will definitely suit our purpose to do the same.

Terms you should know

Accident An accident is an unforeseen event or occurrence causing damage or injury to a person Age Limit It is the stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew insurance policies. Agent An insurance company representative who sells and services life insurance contracts for the insurer; He is an intermediary between the insurer and the policyholder Annuity Plan An insurance contract that provides for an income for a specified period of time, such as a number of years or for life Application/Proposal Form This is to be filled by the insurance companys agent and sometimes a medical examiner including information given by the proposer. In addition, it has to be signed by the proposer. It is one of the primary steps to get an insurance policy. Assignment An assignment is a legal transfer where a policyholder can transfer his interest to another. It can be made by an endorsement on the policy document or by a separate deed. Assignment can be either Conditional or Absolute. Beneficiary The beneficiary is the person or entity, named in the policy as the recipient of the life insurance benefit in the event of policyholder's death. Coverage The amount of protection that the policyholder will receive based on the terms of the policy. Exclusions These are stipulated in a policy as what will not fall under the insurance policy and hence will not provide benefit to the insured or beneficiaries. Fiduciary

A fiduciary is a person who has been legally trusted by a beneficiary. For example, if abeneficiary legally documents that someone will act on his behalf when required. Grace Period Policy holders are expected to pay their premium on time. However, a certain additional period is given to the insured. During this additional period, or grace period, the policyholder is allowed to pay the premium without any interest. Therefore it is a specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection cover of the policy normally continues. Insurable Interest This means that the insured, or the beneficiary who receives the policy benefits, must necessarily suffer an emotional or financial loss if an unforeseen or untouched event occurs. Without insurable interest an insurance contract stands invalid. Insurability Insurability means all conditions that affect the health, susceptibility to injury and life expectancy of an insured. Insurance It is to indemnify the insured, or beneficiary on the death of the insured, as protection against unforeseen circumstances. (A system under which individuals, businesses, and other entities, in exchange for a monetary payment (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions.) Insured The insured is the person who is covered in the insurance policy. Lapsed Policy A policy which has been terminated for non-payment of premiums. A policy lapses usually when the premium due is not paid even after the grace period. Maturity Date The maturity date is the date when the amount paid towards the life insurance policy is given to the policy holder once the term of the policy ends. Maturity Claim The amount given to the insured at the end of the maturity period is called the maturityclaim. Moral Hazard

An insurance policy is based on the need for insurance, the health and personal habits of the insured, the insureds standard of living and income. The moral hazard is the decision of the insurance company to accept the risk and issue a policy after taking the factors mentioned above into consideration. Nomination This is when the policy holder or insured officially authorises another person to receive any monetary benefits of the policy. The authorised person is the Nominee. Premium The amount paid by the insured, either in lump sum or in periodic amounts, to the insurance company under the life insurance policy. Reinstatement Reinstatement of a policy is the act of putting a lapsed policy back into force, after thegrace period has expired. The company may require evidence of insurability and will always require the insured to pay the total amount of overdue past premiums. Surrender Value The surrender value it the amount paid to an insured who wishes to terminate the policy before its maturity date. Vesting Age The age at which the insured starts receiving a pension from the insurance company in an insurance-cumpension policy. NOTE: The above definitions are only explanatory in nature. If any of the above terms have been defined in the policy contract, then the policyholder should consider the definition as specified under the policy contract.

Tax Benefits
Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instrument. Plans from Max Life Insurance can be used for protection, long term savings and tax planning. There are two kinds of income tax benefits available to individuals with respect to long term savings being made in Life Insurance policies:

Deductions
o

80C/80CCC:

Benefit is available to Individual assessee and Hindu Undivided Family assessee.

In case of individual assessee - Himself/herself, spouse, children of such individual In case of HUF assessee - any member of HUF

If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured. For insurance policies issued on or after April 01 2012, deduction is allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured. Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy. Sec 80CCE - Maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC will be limited to Rs. 100,000.

80D

Benefit is available to Individual assessee and Hindu Undivided Family assessee.

In case of individual assessee - Himself/herself, spouse, dependent children and parents of such individual In case of HUF assessee - any member of HUF

The qualifying amounts under Section 80D for self, spouse and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/- for the parents. However, a higher amount of upto Rs. 20,000/- is permitted for parents, if they are senior citizens. Assessee is allowed to make any payment on account of preventive health checkups upto Rs. 5,000 within prescribed overall limit.

80DD: Premiums paid for disabled dependent are eligible for deduction up to Rs.50,000 every year. A higher deduction of Rs. 75,000 shall be allowed, where such dependent is a person with severe disability.

Exemptions
o

10 (10D): Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy will be exempt from tax. However, this rule does not apply to following amounts:

Sum received under Section 80DD(3), or A sum received under a Keyman Insurance Policy, or Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium payable in any of the years during the term of the policy does not exceed 20% of the sum assured. For insurance policies issued on or after April 01 2012, exemption would be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured.

DISCLAIMER:

Please note that the revised tax benefits and slabs presented in the Union Budget 2012 shall be applicable post Finance Bill 2012 gets passed and is enacted as law. The above are extracts from the Income Tax Act1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the relevant sections should be checked. It should also be noted that the change in tax laws could have retrospective effect also. This information should not be construed as expert tax, legal or investment opinion from Max Life Insurance Company Limited. Max Life Insurance Company Limited would not be responsible in any manner for decisions made on the basis of above information. Please consult your tax advisor for claiming tax benefits on insurance products.