Written in : December 1999

In the last article, we discussed some aspects of insurance policies and howtax rebate is available on them. We wind up our discussion in this article. You are perhaps aware of the insurance policies issued by the general insurance companies to secure our lives against death from accidents, sickness etc. These are highly attractive policies and I recommend them very strongly. The premium is almost negligible but the benefits are huge.

I do believe these policies are eligible for tax rebate.The reason is simple: what the law requires is an insurance policy to secure the life of a person. This is what an accident policy does. It is worth a try and I guess you have a fighting chance.

The law now allows you to take out a single-premium policy and claim tax rebate. This is interesting if you have a windfall income in a year, are under-insured and desire tax advantages.

If you have taken a policy and discontinue it before the premium for 2 years is paid off, no rebate would be allowed on any premium paid in the year of termination. Also, the rebate allowed earlier would be considered as tax payable.

If a single-premium policy is taken and it is surrendered within two years of commencement of insurance, you would lose the tax rebate claimed earlier in the year of surrender.

Then there are keyman policies issued to secure the life of keymen in your business. These are beneficial when you want to ensure that keymen - men who critically matter - to your business are secured and their death may result in a major blow to your business.

I have separately written about these policies so I shall not repeat it here.

A question often asked is whether one should take out insurance policies. My view is this.

Some insurance is always needed. I would suggest an personal accident policy as a must for everyone, whatever your income. It is cheap and has great advantages.

You also probably need some life insurance. However, how much insurance you need is an entirely personal decision - it has to do with your requirements and concerns of security, your payment abilities etc. No one - neither a tax advisor, nor an insurance agent (specially!) - can or should decide for you. You should decide, on your own, if you need insurance and how much. What is more important is this - do not - I repeat, do not - take insurance because of tax benefits. Take your insurance decisions purely from the point of view of your insurance needs. Ignore those who show you charts and cash flow workings that make insurance almost free. Nothing is free in this world, and certainly not insurance.

I can certainly say one thing: if what you need is pure and simple tax saving, insurance is not what you want. There are many better ways of tax saving which bring you much greater returns. Not insurance.

I'd also say another thing: don't over-insure yourself. Take out insurance just as much as you need it.

Also remember that insurance policies impose a mandatory burden on you of payments, year after year. You may not want such a binding. Think about everything and decide on your insurance requirements.

If you think I am against insurance, read again. Insurance is essential. What I do not like is the monopoly of LIC and how it has harmed us consumers all. We would be better off with much fiercer competition in insurance, like anything else. LIC itself will better off with more competition - see Indian Airlines

As an aside, did you notice one thing? Whenever there is talk or chance of privatisation or opening up of sectors like insurance, there are two main protestors: the unions and the left parties. The protest is in the name of protecting the consumer. Why do they have to protest in our names - don't we know our own benefits and can't we take care of ourselves? The left is, of course, a spent force. However, our press gives them more space than they deserve and they get a voice.

The hidden agenda is, of course, of protecting their the vested interests of the inefficient systems and bureaucracy in these sectors.

Next time you see a strike, dharna or protest against opening up of any sectors, remember it is not for your benefit but for their own. Talk aloud against such protests and support the liberalisation process. It will surely benefit you - the evidence is all around you for you to see after 8 years of liberalisation in India and many years all around the world.

If the reforms have to go ahead, and the country progress, we need liberalisation of the economy on greater scales than has happened. It can happen only if you and me - the consumers and citizens - support it loudly. Do that.