In continuation with the case in the previous article, Ajit is now 35 years old, married with a small kid. His expenses, responsibilities and insurance and savings needs have all increased. Now, he is stuck with an endowment policy on which he has to pay regularly for the next 10 years, but which neither gives him the required insurance cover nor the required growth on investment. Ajit now knows the benefits of taking a pure term insurance and wants to take one for 25 lakhs for a term of 20 years which would cost him around Rs 10,000/- pa, but he doesn’t want to incur this expense in addition to the endowment policy premium.
Ajit is 35 years old now. When he started working at the age of 25, his father’s insurance agent had suggested that he take a good endowment insurance policy, as it would help him save taxes, provide insurance and also save money for the future. Since it made sense, Ajit did so and subscribed to an endowment policy for a term of 20 years, an insurance cover of Rs. 5 lakhs and an annual premium commitment of Rs. 25,000/-.
House Rent Allowance or HRA is one of the main salary components of an individual. A salaried employee staying in a rented house can claim HRA from his employer and avail of an income tax exemption under section 10(13A) of the income tax act.