financial planning
The Economic Times Wealth October 21-27, 2019
The three must-have covers
When health, motor & personal accident insurance are more needed than life cover.
Ishaan has just taken up
his first job. His income is
more than adequate to take
care of his requirements. He
has some money left in his
bank account at the end of
every month, and he wants
to start investing. He plans
to build wealth that he can
use as his needs change over
time. He is also considering
a life insurance policy for
protection. Has Ishaan
given sufficient thought to
all aspects of his financial
situation before he begins
investing?
smart things to know
2 4
1
Sum assured
is the value
of the
insurance In case of any
cover eventuality, like
provided at death, the sum
the time of assured is the
buying the amount that
insurance is paid to the
policy. beneficiary.
17
I
shaan is doing the right thing by
considering investments early in
his career. However, it is important
for him to first secure his income
and savings against emergencies
that may derail his financial stability,
before he commits to an investment plan.
There may be situations, such as a medi-
cal emergency or an accident, which may
require a large sum of money that Ishaan
may not be able to manage wit his current
income. Or there may be circumstances
that may affect his ability to earn an in-
come itself. In such a situation, Ishaan may
not be able to meet his expenses, let alone
make investments.
Insurance is a way to ensure Ishaan
makes provisions to face such eventuali-
ties. Life insurance is necessary for him at
this stage only if he has dependants who he
supports with his income. More relevant
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Sum assured
The sum assured
depends upon
the income of the
3 5
person and typi-
cally a maximum
of up to 10 times
the annual income
is allowed as the
sum assured.
would be insurance policies that help him
deal with unexpected demands on his
income. Ishaan should prioritise health
insurance that will provide him a cover
against steep medical bills. A comprehen-
sive motor insurance policy will cover any
loss to property or life suffered by Ishaan
or other involved parties in a motor ac-
cident. A personal accident insurance will
provide compensation in the event of tem-
porary loss of income caused by accidents.
Together, these three policies will help
Ishaan deal with any unexpected money
situations he may face. These are situa-
tions that may even push him into debt,
and will have long-term financial conse-
quences. Ishaan will do well to first incur
the expense to protect himself. He can then
consider investments with the confidence
that there will be no disruption to the in-
come.
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Sum assured
should be more
that 10 times the
Sum assured, if annual premium
computed in terms of to be entitled to
expenses, should be at tax benefits under
least 12-15 times the Section 80C and
annual expenses with maturity proceeds
debt obligations, such being tax free
as a home loan, also under Section
accounted for. 10(10D).
PAPER WORK
:: PPF account
A public provident fund (PPF) account
is an investment option that provides
income tax deduction u/s 80C for the
amount invested (subject to a limit of
`1.5 lakh a year). Interest received is
exempt from tax and there is no tax
on the amount received on maturity
of the account either. In view of the
tax benefits offered, many assessees
open PPF accounts with their bank/
post office to build a sizeable corpus.
Account maturity
PPF accounts have a
lock-in of 15 years. On
maturity, the investor has
the option of taking any one of the
following steps:
 Withdraw the proceeds and close
the account.
 Continue the account for a block
of five years.
Closure of account
If you choose to close
the account, visit the
bank branch /post office
where the PPF account is held. A
written application to withdraw
the proceeds and close the account
needs to be given with the original
passbook. Bank details for maturity
proceeds to be transferred have
to be mentioned. Address and
identity proof must be attached
with a cancelled cheque. The bank/
post office will check if the account
has completed its lock-in. If yes,
account will be closed and maturity
proceeds credited to bank account.
Continue account for
block of 5 years
In this case, you need to
give an intimation in writing
on a prescribed form to
the bank/post office within a year
of maturity of the account. You can
keep the account operative with
the balance standing to the credit
of the account, without making any
new contributions. Alternatively,
you can keep making deposits and
continue to avail tax deductions on
such deposits. Once the block of five
years is over, the account can be
continued for another block of five
years and so on. The account will
continue to earn interest until it is
closed.
:: Points to note
 PPF account cannot be attached
by a person to pay off debts.
A court decree also cannot ask
the person to pay off debts
using funds in his PPF account.
 During the first 15 years of the
account, partial withdrawals
are possible from the 7th year,
subject to certain conditions.