A late, leisurely breakfast of aaloo paranthas is a rare treat. So when the strident doorbell interrupted my feast, I was reluctant to greet the guest. Turns out, there were other, more compelling reasons to be unenthusiastic. For on my door was Uncle K. Relatives can be a painful breed, nosy and pesky. 

 

If one of them turns out to be an insurance agent, the pain quotient shoots up. Uncle K has been an agent all his life, and the only time he visits is to sweet talk me into buying yet another policy. He got down to business right away. “You know, I have this new single-premium unit linked insurance plan. As you must be aware, Ulips are investment plans offered by insurance companies with a dash of life cover,” he began between sips of hot tea. 

 

“But why are you recommending this plan?” I interrupted eager to wrap up the conversation and get back to my breakfast. “It’s because you need to invest only once and get a tax deduction for it,” was the pat reply. I took a shot at derision: “Do I?” I asked. It failed. “Of course, you know that the premiums of life insurance policies are tax deductible up to Rs 1 lakh,” Uncle K said. 

 

“The brochure to the policy clearly says that tax benefits as per the prevailing income tax laws,” he added. “Now only if Income Tax Act was as straight forward as that,” I said. “The sub section 3 of Section 80 C of the Income Tax Act 1961 clearly points out that a deduction is available only to so much of the premium, which is not in excess of the 20% of the sum assured [the technical term for the amount of life cover the individual taking the policy opts for] on the policy. 

 

So the entire premium invested in a single premium Ulip cannot be claimed as a deduction against taxable income,” I countered. “Now what was that? You come up with any gibberish and expect to believe you?” Uncle K said. “These days youngsters think they know everything. Listen to me and you can save a neat packet on taxes,” he said. “Obviously, you won't take my word for it. 

 

Let's assume I invest Rs 1 lakh in this single premium Ulip you are so excited about,” I started and instantly regretted the example as Uncle K's face beamed. “You want to invest Rs 1 lakh. That's great,” he interrupted. “It is an example, don't expect me to invest so much and please don’t interrupt me,” I quickly clarified. 

 

“For this premium, my sum assured must be at least Rs 1.1 lakh because the current regulation makes it mandatory for the minimum cover to be to be 110% of the premium for people less than 45 years old. The single premium of Rs 1 lakh works out to be around 91% of the sum assured of Rs 1.1 lakh,” I said, pausing to take a breath. “You are confusing me with so many numbers,”