You get tax benefit on life insurance premium; payout also tax-free
* My bank is insisting that I buy a child insurance plan of Rs 50,000 a year for my son’s education. My calculations show that I would get higher returns if I invest the money every year in mutual funds. Please advice.
– Pradip Kumar
Life insurance policies are better designed to pay the benefits at critical milestones in a child’s career by providing cover against the risk of death and ensuring that child’s education is fulfilled under all circumstances. If you invest in a guaranteed plan, the promised payouts have no uncertainty involved in the timing and quantum of payout. Mutual funds can give higher return but also come with a risk of adverse market performance. Equity-oriented mutual funds are subject to long term capital gain tax. Insurance plans are highly tax efficient as you get tax benefit on invested premium under Section 80C and all maturity and payout proceeds are tax free under Section 10(10D), subject to insurance coverage being 10 times the annual premium.
