Hi everyone, I’m a 30-year-old doctor, married, and together my wife and I earn around Rs 30 lakh per year. We don’t have kids yet but plan to in the future. I wanted some clarity on term insurance — is it really necessary if both of us are earning and already investing regularly in the market? Also, how much cover should we ideally take? Premiums for Rs 2 crore+ policies seem high, at around Rs 4,000 per month each. Wouldn’t it be better to invest that money instead for higher returns? Lastly, under the new tax regime, is it still worth investing in NPS without any employer contribution?
Advice by Manju Dhake, Head – Insurance Advisory Practice at 1 Finance
Term insurance remains essential for both partners, even when both earn well. Each spouse carries responsibilities and future financial commitments, and term insurance is designed to act as an income replacement tool—not an investment product. In the unfortunate event of one partner’s passing, it ensures the surviving spouse can sustain their lifestyle, manage ongoing expenses, and meet long-term goals without financial strain.
The ideal cover amount isn’t one-size-fits-all. It depends on a range of factors, including age, income, liabilities, dependents, retirement goals, passive income, existing insurance policies, and accumulated wealth. Instead of relying on rough income multiples, assessing your personal protection gap offers a more accurate measure. For a 30-year-old non-smoker, annual premiums for a Rs 1 crore cover until age 65 typically fall between Rs 11,000–15,000, while a Rs 2 crore cover costs around Rs 20,000–Rs 22,000 per year — a reasonable price for long-term financial security.
Regarding NPS, if the aim is to build a disciplined retirement corpus, it continues to be a strong voluntary investment option even under the new tax regime. Its low fees, regulatory oversight, and market-linked growth make it an efficient long-term savings vehicle.
NPS under the New Tax Regime: Overview
The new tax regime removes most deductions, but one major benefit remains for NPS subscribers: the deduction on employer contributions. Personal contributions no longer qualify for tax breaks under this regime.
Key NPS tax rules for FY 2025–26
Employee Contribution: No deduction allowed under Sections 80CCD(1) or 80CCD(1B).
Employer Contribution: Deduction available under Section 80CCD(2) up to 14% of salary (basic + DA), over and above other limits.
Standard Deduction: Salaried individuals can claim Rs 75,000.
Effective Tax-Free Income: With rebates and standard deduction, salaried taxpayers can earn up to ₹12.75 lakh tax-free.
Taxation at Withdrawal (Same for Both Regimes)
Lump sum: Up to 60% of the corpus withdrawn at retirement is tax-free.
Annuity Purchase: Minimum 40% must be used to buy an annuity; this amount is tax-exempt at purchase, but pension received later is taxable.
Partial Withdrawals: Up to 25% of your own contribution is exempt for permitted purposes.
For individuals relying on standard deduction and employer NPS contributions, the new regime may offer lower taxes and greater simplicity. Salaried taxpayers can also switch between regimes each financial year based on which one is more beneficial.
Section 80CCD details
Section 80CCD provides tax benefits for contributions to NPS, UPS and APY. Available to individuals aged 18–70 (NPS/UPS) and 18–40 (APY), it is split across three subsections:
80CCD(1): Deduction up to Rs 1.5 lakh (shared with 80C and 80CCC) for personal contributions — available only under the old regime.
Salaried employees: up to 10% of salary (basic + DA).
Self-employed: up to 20% of gross income.
80CCD(1B): Additional Rs 50,000 deduction for self-contributions — only in the old regime.
80CCD(2): Covers employer contributions, available in both tax regimes. Employers may contribute up to 14% of salary (for government employees) and 10–14% for others, fully deductible without affecting 80C limits. This makes NPS one of the most tax-efficient retirement tools.
Particulars Central / State Government Employer Other Employer
New Regime 14% of salary (Basic + DA) 14% of salary (Basic + DA)
Old Regime 14% of salary (Basic + DA) 10% of salary (Basic + DA)