I am 59, I bought ICICI Pru Life Elite Pension policy in 2009. The policy term is 10 years and I paid three premiums of ₹5 lakh. I believe the maturity proceeds of this policy is approximately ₹25 lakh and it will be taxable. My agent is advising me to buy another policy, pay the first premium from my cash reserves and pay the remaining four premiums by commuting the money from the existing policy to save tax. Is it a right and safe way to avoid tax? New policy will also cover the life of my 30-year-old son.
- Mukesh Varshney
ICICI Pru Life Elite Pension is a Unit Linked Pension Policy with higher charges on the first year. Like other pension policies, you can withdraw up to 1/3rd of the accumulated money tax-free on maturity and buy an annuity with the remaining money.
You have wrongly estimated that the maturity value of your policy is going to be ₹25 lakh. The final maturity value of a market-linked policy would depend on the performance of the market. You still have four years left for maturity to find out the maturity value.
Your agent is offering you bad advice and trying to sell you another insurance plan that will earn him good commission. The money you commute (1/3rd of the corpus) from the policy is tax-free. You don't have to buy another policy to save taxes on it. And you must buy an annuity with the rest of the money.
You have two options. One, since you have already paid the premiums, you can continue with the policy if you do not need any money immediately. Two, you can surrender the plan and take the money out. The policy allows surrender after three policy years. Surrender value will be 98% of the fund value, and it will be added to your income and taxed as per the applicable slab.
If your son needs a life insurance cover, he should by a term insurance plan. At his age, he can pay a premium of ₹8.000 and buy a term cover of ₹1 crore.
Do not buy insurance products for investment purpose. They do not offer adequate insurance cover and they are also not a good investment option. Always opt for a term insurance plan to buy a life insurance cover and invest in equity mutual funds to meet your long-term financial goals.
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