Queries

Arif Khan, Patna

I don’t have a life insurance policy, as I don’t have anyone completely dependent on me. However, I’m considering buying one. How do I determine the right coverage amount, and what factors should I consider when choosing a life insurance policy?

One buys life insurance for four reasons: death benefits for your nominees, investment, savings, and tax benefits. The death benefit is the most important. Consider life insurance if you are likely to have dependents, such as parents, a spouse or children. The sum assured should be 10 times your annual income. While selecting term insurance, you should look at the insurer’s premium, death claims settlement rate and solvency margin, a measure of financial strength. If you focus on long-term investment returns or savings, you may consider unit-linked investment plans (Ulips). However, evaluate this alongside other investment options, such as mutual funds, bank deposits, and government savings schemes. The primary criteria for selecting Ulips are historical investment returns, the size of the Ulip fund, and the insurers’ performance on timely maturity payments.

Kapil Mehta, Co-Founder, SecureNow

John Sebastian, Mangaluru

I do not have any major additional income besides my salary, but I earn more than the basic exempted income. However, I have not filed income tax returns for three years. What actions can I take, and what are the potential consequences?

The first step is to choose your income tax return (ITR) form carefully. You seem to be in a profession and also have other income sources. So, ITR-3 seems appropriate for you. You must ensure you file ITR post June 15 but before July 31 so that tax deducted at source (TDS) by your clients reflects in Form 26AS. You must make a summary of the deposits from your bank statement and bifurcate it into six classes: income from profession, interest and other income, capital gains, house property, salary, and personal receipts. Match the first five with your auto-populated return and annual information statement (AIS), which you will find on the income tax portal, claim TDS, pay balance taxes and file your ITR.

Vivek Jalan, Partner, Tax Connect Advisory

Rinki Singh, Jharkhand

I am an interior designer, and I live with my parents, who are working. I have a college-going younger sister. How do I save for my family and my needs?

The best way to invest for the future at a young age is to focus on your life’s financial goals. Lay down what you wish to achieve at what point and how much it will likely cost at that time by factoring in inflation to today’s costs as per the time required to reach that goal. For example, the goals could be higher education for yourself and your sister, marriage, shouldering some family expenses, purchasing a car, preparing for retirement, etc. The thumb rule to translate the above into actual investments is to take higher risks for longer-term goals (over seven years), no or little risk for short-term needs (up to 3 years), and medium risk for in-between goals. Risk will be as defined by you and your comfort level. In general, the vast bouquet of mutual fund schemes should meet all your future requirements if chosen well. Do not forget to build an emergency fund equivalent to 6-12 months of your expenses. Also, take care to invest in tax-efficient avenues.

Col. Sanjeev Govila (RETD.), CEO, Hum Fauji Initiatives