If you started earning recently or have been employed for a while, then you must think about these investments in your financial planning. Whether your annual income falls under the income slabs as defined by the IT department or not, these investments are must-have and kind of first of the investments to be made by any earning person.

1. Health Insurance (80D)

In todays time, expenses towards health care are in rise. And with Covid-19, we have seen or heard many stories about families selling their earnings, gold, assets to bring their loved ones back home healthy. Almost all insurance companies are covering even Covid-19 today. While salaried employees get this as a benefit from their employers, it is advisable to have one outside the company especially for business income persons.

Things to keep in mind while buying a Health Insurance:

Group Policy vs Retail Policy: It is simple to identify what type of insurance you hold. Usually, any employer provided insurance is called group policy. You get benefits like low premium, higher sum insured, domiciliary claim (amount that is reimbursed for any medical expenses apart from hospitalization), private room eligibility doing hospitalization etc.

While with many benefits, some group policies come with a limitation of partly payment, no cashless hospitalization option etc. While these parameters holds importance even in retail policy. Group policy sum insured and benefits will vary from company to company and hence a retail policy with a good insurance provider is advisable. Group policies co-terminate with the employment in a firm.

Waiting Period: The minimum the waiting period, the best it is. Almost every health insurance provider have this clause of minimum waiting period usually between 3-4 years for pre-existing diseases. Which mean if there is any hospitalization claim that has occurred because of the treatment for existing disease, the claim will be approved only if the policy holder (patient) is insured for all the duration mentioned in the waiting period.

A person holding a group policy should keep in mind that changing jobs will terminate the policy and the waiting period will be reset if the new employer provides a policy from another insurance provider. But there is an option to convert the group policy into retail policy which should be done before leaving a company.

Who should be covered? The answer is simple. All members of the family. Employees has the benefit of adding spouse and up to two children at no extra cost under company provided policy and at minimal premium if covered through a retail policy.

Ankur Warikoo, to whom I dedicate this post, says that dependable parents should be covered in a separate policy. The rationale is very simple, health insurance premiums are decided based on the age of eldest persons in the policy.

2. Life Insurance (80C)

There is a taboo while one talks about death. However, the only certain event is also death. But let’s look at it this way. We plan our financials in such a way that it will help us and our loved ones to live a decent life in future. We might be investing/saving in different financial instruments such as equity, bank deposits, home loan, children education etc. Life Insurance will just ensure that these investments will continue even without our absence so that our family will not face any difficulties ‘financially’.

There are various types of life insurance such as ULIP, Endowment and Term Plan. In term plan, you do not get the premium amount paid. Of these, one must consider taking a term plan at the first because of the life coverage it offers at very minimal premium amount. The maximum coverage is around 20-25 times the annual income of the person.

Things to keep in mind while buying a Life Insurance:

• Try to take maximum cover based on the annual income. This might increase the premium but is surely worthy choice.
• Entry age is a differentiator. Early 20s is the best time. As we grow so is the premium for same cover.
• Claim ratio of the insurance provider. The higher the better.
• Declaring particulars of the policy when taking multiple policies. If undeclared there is a chance of death claim getting rejected when total cover across policies is greater than the Human Life Value (HLV)
• Rider Options/Add-ons: These are extra benefits one can take advantage of while buying a life insurance. Two recommended rider options are Critical Care Benefits and Disability Claim
• Who should take life insurance? It is sufficient if the earning person of the family take life insurance. Also, persons whose income is limited and less likely to accumulate wealth more than cover before the end of prime working age of 50 years should take the insurance. But, can we have that assurance in highly uncertain life?
• Buying a life insurance does not give us a green card to spoil the health and to avoid a healthy lifestyle. Life is more valuable than the total premium amount paid.

3. National Pension Scheme (NPS) (80CCD)

NPS is one of the best way to create corpus by the time we retire. As little as 10000 per month for 35 years can create a corpus fund of about 22 million. You can find it for yourself using NPS calculator, how the principle of compounding create such large corpus.

One will have an choice to manage the NPS contribution and returns are linked to various schemes based on the risk apatite of the investor. In general, NPS works similar to mutual funds where one will purchase the units based on the defined percentage allocation for Equity/Debt/Government using a Net Asset Value (NAV) for each unit of the fund purchased. If the fund performs well, returns will be higher.

To sum it up, one must consider these tax-saving investment options before planning for a investment in other financial instruments. This will enable a sustained and secured life until we retire. Read about old and new tax-regimes in income tax declaration to understand the criteria for claiming the benefits discussed above.