One of the most in-demand types of insurance coverage and the cheapest means to ensure your family’s future is term insurance. This is a very popular kind of coverage in India and it comes with various tax benefits, making it all the more attractive for people. While most people know the basic coverages offered by term insurance plans, most do not know that such policies can also bring tax benefits.
1. Know Term Insurance
Before discussing tax benefits, one should know briefly what term insurance means. Term insurance policy defines a life insurance policy where a death benefit is available to the nominee if the policyholder dies during the policy term. If the policyholder survives the policy term, no maturity benefits are available. The main advantage of term insurance is that it has much higher coverage at a much cheaper premium.
This very simple and inexpensive term life cover is usually taken by those insured in a life with relatively low budgets. It has no profit because it does not cover any investment or maturity benefits due to the absence of a claim by the beneficiaries. At the same time, this is the most significant defense for a very low cost while keeping pure protection.
2. Tax Relief Under Section 80C, Income Tax Act
Another major reason for choosing a term insurance plan is that it can benefit the people who choose it with tax benefits under Section 80C of the Income Tax Act. Here, it is mentioned that the premium paid towards a term insurance policy is eligible for a deduction of up to ₹1.5 lakh in a financial year.
3. Tax Benefits of Premium Paid by HUF (Hindu Undivided Family)
In India, the HUFs can benefit from the premiums paid against a term insurance policy concerning taxes. The HUF can also claim a deduction of up to ₹ 1.5 lakhs under section 80C, just like any other taxpayer in the country. Premiums paid to HUF would be allowed as deductions from the family’s total taxable income, thus reducing the incidence of tax upon them.
4. Section 10(10D) Death Benefit Tax Benefits
Whereas Section 80C brings in tax savings to the account books of the policyholder during the policy term, tax benefits on death benefit received by the nominee are provided through Section 10(10D) of the Income Tax Act. The sum received by the nominee and the legal heir of the deceased is tax-exempt and this provision is based on a clause that the amount assured should exceed the premium amount paid during the term of the policy.
This is great as you will ensure that your loved one gets the death benefit without tax liabilities at the withdrawal.
5. Tax Benefits Under Section 80D for Critical Illness Riders
Critical illness riders could usually added along with the addition of riders called critical illness riders in most policies. The insurance company shall advance financial assistance should the policyholder be diagnosed with a severe form of disease that includes but is not limited to cancer, heart attack, and stroke, among other diseases. This premium is available for tax benefits under Section 80D.
Therefore, premiums paid on health insurance and any rider of critical illness attached to term insurance are permissible under Section 80D as a deduction. However, there is a maximum limit for tax deductions available under Section 80D. It is capped at ₹25,000 for the individual age group less than 60 years and ₹50,000 for the senior citizen class.
6. Tax-Free Maturity Benefits in Certain Categories
Term insurance plans do not have any maturity benefits, but if the policyholder survives the term, then there are a few provisions through which tax exemptions are allowed under certain circumstances. For example, if the policyholder decides to take a lump sum payout from the term insurance policy and later opts for a rider or renewal, then some benefits may become tax-free.
Therefore, it would be prudent to seek advice from your insurance company or financial advisor on the terms and conditions specific to tax exemptions that may apply in special situations.
7. Term insurance will properly maximize using a term insurance calculator
This term insurance calculator will help avail of tax benefits under the income tax laws. The term insurance calculator is basically an instrument used to calculate several premiums according to age, sum assured, period of policy, and rider-like critical illness, in doing that giving you the chance to compare and find a less costly and maximum tax-effective plan. It also helps in understanding the coverage that you need vis-a-vis your income and liabilities along with correlating the premiums you need to pay to the tax benefits you wish to reap.
Conclusion
This provides a good incentive in India to manage your tax liabilities effectively as it secures the future of your family besides protecting the loved ones with the best form of death benefits. Using deductions under Section 80C on premiums paid and exemptions under Section 10(10D) on the death benefit, your taxable income gets considerably reduced, and yet your family members are financially secured.
Once you know the tax advantages it can bring home, and if you have something similar to a term insurance calculator for your disposal, you can actually really create a plan that does not just protect your future but keeps your current taxation optimized. So, just before finalizing anything about insurance needs, please consult a financial expert and let them know all about the potential tax savings these term insurance plans have in them so that one can derive the best benefits from that policy.
ⓘ LAFFAZ is not responsible for the content of external sites. Users are required to read and abide by our Terms of Service.
