Rethinking life insurance

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Editor's note: Among the surprises in this year’s Union Budget was the finance minister’s decision to remove the exemption on income received from traditional insurance policies where the premium is over Rs 5 lakh. Now, the removal of the exemption only applies on policies that have been purchased on or after 1 April 2023, but what’s important to note is that whether you buy one policy with a premium in excess of Rs 5 lakh, or buy multiple life insurance policies where the total premium paid exceeds Rs 5 lakh, the sum you receive on maturity will not be exempt from tax. This change in the Budget was made with the goal of checking the very large tax-free proceeds that high-networth individuals receive on their high-value life insurance policies. But this change also implies that individuals don’t have to think about insurance as a tool to save tax anymore—which is an opportunity for us to evaluate our own life insurance decisions. Understanding the types of life insurance At its core, life insurance is a guaranteed payment at the time of death. It …