Complete Guide on How Term Insurance Policy Can Help You Save Tax

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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Buy term insurance to serve dual aim – protect your family and save tax too!

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.

Term Insurance as a Tax Saving Tool

Life insurance policies are one of the better tax saving schemes available. Here is the host of tax benefits offered by term plans.

• Premium Paid: Eligible for tax exemption of up to Rs 1.5 lakhs a year, under Section 80C of the Income Tax Act.

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:

• If your term policy is availed on or before 31^st March 2012, then your tax deduction is capped at 20% of the sum assured.
• If your term policy is availed on or after 1^st April 2012, then your tax deduction is capped at 10% of the sum assured.
• In case of disabilities mentioned under Section 80U or if you are suffering from ailments listed under Section 80DDB of the Income Tax Act, then 10% mentioned above would be increased to 15%.

• Death Benefit: Tax-free in the hands of the beneficiaries

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.

• Health Rider: Tax exemption U/S 80D

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

Benefits of Term Insurance

• Term insurance secures financial future of dependants.
• It gives you peace of mind as you do not have to worry on dependants’ future when you are not around.
• The premiums you pay towards term policies are very nominal.
• High coverage is offered at low premiums.
• You can enhance sum assured by availing add-ons or riders.
• Premiums you pay towards term policies are eligible for tax deductions under Section 80C of the Income Tax Act.
• Death benefit received by the nominee is completely tax free.
• You can nominate multiple beneficiaries and specify their share in the sum assured.

Conclusion

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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