Term Plan Settlement

POSTED BY sonadhi ON April 22, 2013 1:06 pm COMMENTS (2)

Hi All,

Recently I have purchased a TERM Plan with 1Cr.I came to know that they need to keep the records in case of the death of the policy holder & need to communicate with IRDA.It brought 2 questions in mind which I would like to ask you.1) In case of death of the policyholder,is the sum assured given to the nominee is Taxable or Tax free?2) Secondly,in case of claim rejection,reasons are shown that the policyholder was alcoholic,etc.I am surprised,if the term plan provider says that the policyholder gave a wrong information.Does it mean that they are knowing the cause & still getting the premiums!

2 replies on this article “Term Plan Settlement”

  1. Dear Sonadhi, the nominee is merely the custodian of the sum assured on behalf of the legal heirs of the deceased person. The nominee may be within the legal heirs or an outside person. Till there is no income accrual from the sum assured, no tax liability on nominee the moment, nominee earns any income from the sum assured, such income ‘l become taxable to nominee.
    For example – I’m nominee of your sum assured & received this 1Cr. Rs. cover. Now before distributing the amount as per your WILL I kept the amount for 1 Month with me & for that period I earned the Interest income from the same Say 50000 Rs. for a month, this 50K Rs. amount ‘ll be my taxable income. The basic capital of 1Cr. Rs. is tax free to me as well as to your nominee.

    2nd question is already answered by dear pattu, hence not repeating.



  2. 1). Tax free. (Remember nominee only collects the money and distributes according to the will of the deceased. If there is no will there can be disputes and litigation).

    2) No. Such situations will occur only for early claims. After the policy is two years old such claims cannot be made without proof. In any case if there is anything suspicious a detective will be engaged by the insurer and he/she will investigate with information collected from office colleagues, neighbors and relatives of the deceased.

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