Explain death cover in term insurance

Life is uncertain. But the same need not be the case for the financial needs of your loved ones, in your absence. A term insurance policy is one of the easiest, hassle-free and quick ways to ensure that you can provide for your dependents, even when you are not around anymore. 

Meaning of Term Insurance

Term Insurance is the simplest form of the life insurance policy. These schemes upon the death of the insured person (policyholder) pay a stated amount (also known as sum assured) to the nominee or beneficiary. There are no maturity benefits under these plans. 

A Term Insurance policy remains active for a particular period of time. The premium for these policies depends on a host of factors such as age, general health or life expectancy, occupation, etc.

Unlike other life insurance policy variants, there are no savings, profit or other such components built-in term insurance cover plans. Due to their sole offering of a death cover, they are also known as pure life insurance or protection policies. Term insurance policy is a great way to financially secure your dependents’ lives in your absence, especially in an unfortunate case of untimely death.

Why term insurance is a must for everyone?

1. Affordable and higher coverage

When it comes to life insurance, it is often said that you should have a cover which is at least 10 times your income. Such high coverage, without burning a deep hole in your wallet is feasible only with a term insurance policy. The premiums for Term Insurance cover are much lesser than other life insurance plans. 

Term insurance policy, due to its simple construct, is able to provide a higher coverage (sum assured amount) at an affordable premium. This is the most economical way to offer optimum financial security to your dependents.

2. Riders

Term insurance policies also give the option to further enhance the insurance coverage with the help of additional riders. For instance, disability cover, higher coverage in case of accidental death, lump-sum payment on diagnosis of any critical illness such as cancer, renal failure, etc.

3. Tax Benefit

Premium paid towards these policies qualify for a tax deduction as per the Income Tax Act (Section 80C). Moreover, death benefit payouts made to beneficiaries are also exempt from any tax in the hands of the recipients.

Inclusions of a death cover

Death cover is the key highlight of a term insurance policy. A death cover entitles the beneficiary to receive a lump-sum payment on the insured’s demise. However, it is important to understand the type of deaths which are covered or excluded under term insurance cover. While each insurance provider may have their own terms and conditions, these are the generally accepted guidelines:

1. Natural death

Death caused by natural conditions such as health-related or medical issues, old age, etc. are eligible for payment under term insurance cover.

2. Accidental death

If the policyholder dies in an accident, the term insurance cover will be applicable.

3. Suicide

Usually, insurance providers do not accept these claims for the first 12 months of the policy. However, from the second year onwards, death due to suicide are also included in the term insurance cover.

Some of the commonly excluded deaths under term insurance policies are:

• If the insured is involved in any criminal or illegal activity which leads to his or her death.
• If the death is due to a road accident wherein the policyholder was drunk or under the influence of other narcotic substances.
• If the policyholder’s death takes place during an adventure, sports or any such hazardous activity (unless covered by an additional rider)
• Death due to self-inflicted injuries, diseases which are sexually transmitted or substance abuse
• Death due to pre-existing diseases or health conditions
• Policyholder’s death due to pregnancy-related complications or during childbirth

To sum it up in the words of a wise man, “term insurance is part of a good defensive plan”. It brings financial security for your loved ones in your absence. But more importantly, it takes care of not just tomorrow but your today too. It gives you peace of mind knowing that you have done the best you could have for your dear ones!

How to open the NPS Account through ETMONEY App?

The National Pension System (NPS) is a market-linked retirement savings avenue which helps you plan for a tax-effective retirement corpus. The scheme helps you build up a substantial retirement corpus over your working life and then gives you a tax-free benefit when you reach 60 years of age. Moreover, the NPS scheme also promises pension payments throughout your lifetime after it matures. These pension payments help you get a regular stream of income even post-retirement.

Since NPS investment is an attractive choice, many individuals opt for the scheme. There are various modes of investing into the NPS scheme. The ETMONEY mobile application also allows you to open an online NPS account. In fact, investing in the NPS scheme becomes quite convenient through the ETMONEY app. Do you know how to open your NPS account through the app?

Here’s the detailed process of opening an online NPS account through the ETMONEY app –

• Download the ETMONEY application on your Smartphone from Google Play Store or Apple Store depending on your mobile phone’s operating system
• Once downloaded, register on the application using your email ID
• The application would ask your permission to access your phone inbox to send and receive SMS. You can hit ‘Continue’ to grant access to choose ‘Ask me Later’ to proceed to the next page
• The application would, then, create your profile. You would see different options for investments, insurance, and loans. You can also track your monthly expenses using the application
• On the app’s home page, there would be an option ‘Retire Rich’ under which you would be given the option to invest in the NPS scheme
• Choose the NPS investment option and a new screen would appear. It would show you the tax benefits of NPS, its returns, how it works, NPS calculator, how the investment is allocated and also FAQs on NPS
• On the bottom of the page, there is an ‘Invest Now’ button. Click on it to begin your investments 
• You would then be asked if you have invested in NPS earlier and your date of birth in DD/MM/YYYY format
• Then you would have to choose your risk profile from Aggressive, Moderate, or Conservative profile options. The aggressive profile has a high equity exposure while Moderate has a moderate exposure. Conservative profile, on the other hand, has low equity exposure thereby preventing your investments from market volatility. Moreover, based on your age, the application would also recommend the suitable risk profile which you should choose.
• After you choose your risk profile, the fund managers would be listed. Their respective fund sizes and 5-year returns would also be shown so that you can choose a suitable fund manager to manage your investments and give you the best returns
• After the fund manager is selected, you would be asked the lump sum investment amount which you would like to invest
• Specify the amount and click to agree on the terms and conditions of the application
• Click on ‘Continue’ and you would be shown the total amount payable including GST
• Confirm the amount to proceed to invest
• You would  have to enter in your PAN Card number as it is compulsory for NPS investments
• Once your PAN number is verified, choose whether you are an Indian resident or an NRI
• Provide your bank account details and scan and upload a copy of your account’s canceled cheque for verification purposes
• Thereafter, you have to make the payment from your bank account to complete the investment
• Once the investment is done, you would get a confirmation message and also your PRAN account number through which you can track and monitor your NPS investments

The ETMONEY app, therefore, eases the whole process of opening an online NPS account. It takes a few minutes to invest in NPS through the application. The application also helps you track your investment and monitor the returns easily with a few clicks of the button. So, if you want to invest in the NPS scheme, download and use the ETMONEY app for a convenient way to invest.

Equity fund investment strategy to get max returns and stability

The global economy is already experiencing a slowdown due to the coronavirus pandemic. With businesses of various sectors coming to stand still, there would be a rise in unemployment level and fall in consumer demand. As the modern world is facing the challenge of a global pandemic for which it was unprepared, one may not be able to talk about the severity of its impact on the economy for the days to come. The investor community has also been experiencing volatility and uncertainties due to this economic situation. However, during this volatile period, investing in equity mutual funds with certain strategies can help you achieve financial goals with stability and optimum return.

So, how can you strategize your equity fund investments to get maximum returns and stability?

Equity mutual fund investment strategies for optimum returns and stability

In the current market scenario, having a long-term investment strategy can optimize your returns in an equity-based investment. Here are certain tips to define your long-term equity mutual fund investment strategy for generating maximum returns and stability –

• Be disciplined and invest systematically: In this volatile market, it is important to follow a disciplined approach towards investment. Save regularly and systematically which will not be heavy on your wallets. With the professional management of your money, equity mutual fund investments offer you a choice to invest a certain fixed amount systematically every month. A systematic investment plan helps you tide over market volatility as it works on the principle of rupee cost averaging. As the markets are down if you have already invested in best performing equity funds through SIP, consider increasing your monthly investment amount.

SIP is the best way to invest in equity mutual funds during the volatile market to achieve your long-term financial goals along with helping your investments to stay stable during market turbulence.

• Diversify within the equity fund choices: There are multiple equity fund types are available to choose to depend on your investing style, risk-taking ability, and goal. Classification of equity funds is done on the basis of the market capitalization of underlying stocks in the portfolio, diversification, taxation and by sector-orientation and investing themes. In the volatile market scenario, you can diversify your equity fund investments among the various classification of equity funds such as large-cap funds, value funds, focused equity funds, sectoral funds, and thematic funds. For example, as the pharma sector has become attractive again and expected to perform well in the coming days, you can choose to invest part of your money in sectoral-pharma funds. For long-term stability, you can consider investing a major part of your money in large-cap equity funds that invest in blue-chip stocks.

• Evaluate the fund performance: Once you decide on the classification of equity funds for your consideration, it is important to evaluate the performance of funds in each category so that you can invest in best performing equity funds. When it comes to evaluating performance, you need to also have a long-term outlook in consideration of past performance. For example, if you are planning to invest in large-cap funds, sectoral-pharma funds, and focused funds you need to list out the best performing equity funds in each category. There is Axis bluechip fund, HDFC index Sensex fund, and Mirae asset large-cap fund at the top in large-cap category. You can refer to ETmoney to know best-performing equity funds in each category.

• Make the right choice: Once you list out the best performing equity funds, you need to choose the right funds among the list that fits into your goals and risk appetite. 

Diversification and systematic investments are the keys to long-term equity investment strategies that can optimize your return with stability. However, your investment decision should primarily be on your liquidity preferences, time horizon, investment goals, and risk appetite.

How you will get indexation benefit through Medium duration fund investments?

Debt fund schemes in India offer a wide range of investment options to investors, especially ones with a low-risk appetite or who want to avoid market volatility. With SEBI’s categorization and rationalization exercise in 2017, there are currently 16 debt fund schemes in India. Investors have ample choice available and can opt for a scheme which is in line with their investment objectives. 

This article will give you an overview of medium duration funds. 

Meaning of Medium Duration Funds

Medium duration funds are open-ended debt schemes that invest in instruments (debt and money market) such that the Macaulay duration ranges between three years and four years.

Medium duration fund investments have a longer maturity period than six debt variants (overnight, liquid, ultra-short, low duration, money market, and short duration funds). However, their maturity tenure is lower when compared to medium to long duration and long duration funds. This debt scheme is more likely to have higher interest rates, especially when compared to the shorter duration debt funds. Medium duration fund investments are ideal for investors who have a medium investment tenure (at least three years), low-risk preference, and are content with moderate returns. 

Indexation benefit for medium duration funds

For the purpose of taxation, medium duration fund investments (being debt schemes) qualify for indexation benefits. This benefit is applicable for long-term capital gains or when the investments are redeemed after a minimum period of three years. Indexation allows adjustments in the initial purchase price of your investment to account for inflation. The purchase price is inflated basis the inflation index of the year of purchase. As a result, your net gains go down and so does the tax payable.

Here is an example of how indexation helps to bring down your tax liability.

In August 2015, you put in Rs. 10,000 towards medium duration fund investments. You were allotted 1000 units at the NAV of Rs. 10. In the year 2019 (July) when the NAV had reached Rs. 20 you decided to redeem the investment. The value of your investment at that time was Rs. 20,000 (1000 units * 20 NAV per unit). 

Hence, your capital gains from this transaction were Rs. 10,000 (i.e. Rs. 20,000 – Rs. 10,000). However, as your investment holding period was more than three years you will and get the benefit of indexation. As a result, you will not need to pay tax on the amount of the entire gain of Rs. 10,000

In order to determine the taxable income, the Indexed Cost of Acquisition will be computed as:

Original investment or acquisition cost multiplied by (CII** of the redemption year divided by CII** of the acquisition year)

= 10,000 *(289/254) =Rs. 11,378

(**CII stands for the Cost Inflation Index. This value is determined by the Central Government. CII for the FY 2015-2016: 254. CII for the FY 2019-20: 289) 

Your net gains (for the purpose of taxation) from the sale transaction would now be Rs. 8622. The tax payable would be Rs. 1724 (20% Tax rate) as compared to Rs. 2000 without indexation.

Final Words

Indexation is the USP of debt fund schemes in India. It gives them an edge over conventional investment options such as FDs, etc. Medium duration fund investments, due to their longer maturity period amps up the potential for generating higher returns for investors. This coupled with indexation benefits makes medium duration fund investments a total win-win deal! But remember that indexation benefit kicks in only once you complete three years. Longer you remain invested, lower is likely to be your long-term capital gains tax.