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Three Destinations, Three Roads

Address your three needs of life insurance, returns on investment and saving taxes in a separate manner

I want to invest a fixed amount of ₹5000 every month towards a good insurance plan. Please suggest a nice bundle of investment ideas or a selected plan that will cover me like a term plan, give good returns and provide tax benefits. I am ready to invest for the next 20 years. I am married and have one child.
- Denzyl Andrade

We advocate that you keep your insurance and investments separate. You need a life insurance, return on investment and tax saving from an investment of ₹5000 per month. Addressing these one by one:

For life insurance, you must go for a term plan which is the simplest and best form of life insurance. We cannot calculate exact amount of insurance that you would require due to lack of data. You can calculate this sum yourself simply by deducting your total savings, assets and any other source of income from your liabilities or obligations in future (such as your child's marriage or higher education) plus your total household expenses till you retire. The resulting amount is the amount of insurance you need. Basically, insurance should aim at letting your family lead a financially independent life even in your absence. If the required insurance turns out to be a big sum, diversify into two term plans from different insurers. Premium paid under life insurance plans also qualify for taxation benefit under Section 80C. Aviva i-Life, Bharti AXA Life eProtect, Aegon Religare iTerm Plan and HDFC Life Click2Protect are some of the good term plans. Premiums are shown below.

Life Insurance Term PlansAnnual Premium for a 50 lakh cover (in ₹)
Aviva i-Life8543
Aegon Religare iTerm Plan8100
Bharti AXA Life eProtect8350
HDFC Life Click2Protect9300

Premiums for a healthy non-smoker male of your age, Premiums are exclusive of taxes.

Secondly, you have a long time horizon for investment. You need tax saving as well. Equity Linked Savings Scheme is the most appropriate investment for you. ELSS funds will provide taxation benefit under Section 80C. Start a monthly systematic investment plan in ELSS funds such as Franklin India Taxshield, ICICI Prudential Tax Plan or Quantum Tax Saving Fund. Every ELSS has a three year lock-in period thus each monthly investment will be locked in for the next three years. So, if you need the lumpsum after a span of 20 years, make sure you stop investing into it after 17 years otherwise you will have to wait for another three years after 20 years are complete to redeem whole amount. Start switching to debt funds as you near your goal to lock into the returns generated by equities so far.

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