Term insurance is very important for the breadwinner of the family. If you have dependants, then it’s extremely important for you to have sufficient insurance to protect them in the event of an unexpected demise.
Availing a term insurance policy comes with the twin benefits of financial protection and tax benefits. This article gives detailed information on how to save income tax with the help of term life plans.
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Term insurance plans are pure risk protection plans that offer death benefits to nominees. If you survive the term of the policy, then you get nothing. In short, there are no survival benefits. This is because the term insurance premiums are not invested. It’s essentially a cost you are bearing on an annual basis to protect family’s financial future, when you are not around.
Tax planning is a critical part of financial planning. You must think of saving taxes when you are investing and availing financial products. You must be aware of the fact that the annual premiums you pay towards a term insurance policy are eligible for tax deductions under Section 80C.
Life insurance policies are one of the better tax saving schemes available. Here is the host of tax benefits offered by term plans.
You can enjoy tax deduction on the premiums paid towards term life plans each year. Premiums paid towards life insurance policies up to Rs 1,50,000 a year, is eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
This deduction is available in respect to policy being bought for self, spouse and children. There are certain criteria applicable for deductions and are mentioned below:
Death benefit, which is the sum assured of the term policy, when paid out to the nominee(s) or beneficiary(s), is completely tax exempt. There is no capping on the amount received by beneficiaries as death benefit for tax exemption. Hence, you can go ahead and choose the sum assured as per your requirements, without having to worry on beneficiaries being liable to pay taxes on death benefit.
If you have availed critical illness or accidental death rider or any other health rider with your term insurance plan, then you are eligible for tax deductions under Section 80D of the Income Tax Act, on the additional premium you are paying towards the rider. Section 80D of the Income Tax Act allows tax deduction on the premiums paid towards health insurance plans. However, the deductions are capped at Rs 25,000 a year. It’s Rs 50,000 for senior citizens.
Though saving tax is an integral part of any investments that you make, it’s not the only criteria. Availing term insurance is a very important financial decision. Hence, it’s critical to consider other important factors like finding a suitable plan, selecting the right coverage, selecting the right term and so on. Ensuring family’s financial stability is the main purpose of buying a term insurance plan. Note that tax saving is just an added advantage of availing a term insurance policy.
SEE ALSO: Best Term Insurance Plans In India
With various tax benefits, term insurance is definitely considered one of the most effective tax saving schemes. You can make use of the online tax calculators in planning taxes when you make insurance and investment decisions. Though, the primary goal is to insure yourself against all odds, knowing tax provisions and planning taxes with each investment can help save more.
SEE ALSO: What is a Term Insurance Plan?
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