Term Insurance and Tax Planning: How It Can Work for You?
In India, term insurance is a frequently employed financial strategy. With an additional rider, a term plan can aid with medical bills and offer financial security for your family in the event of your absence as its core premise. Additionally, some term insurance policies come with riders that, in the event of an accident-related permanent disability, eliminate the premium and give your family an additional sum assured in the event of accident-related deaths.
You can gain greater peace of mind since term insurance plans offer pure life coverage for a comparatively reasonable amount. You can then widen your coverage with suitable riders, as mentioned earlier. Here is a guide on the connection between term insurance and tax planning, i.e. how it can help you save taxes.
Things To Know About Term Insurance Tax Benefits
Tax planning and term insurance go hand in hand. A term plan may qualify for several tax breaks under various parts of the Income Tax Act of 1961, including Sections 80C, 80D, and 10 (10D). The following are eligible for these tax benefits:
- The sums paid as premiums for the term insurance policy
- The life insurance proceeds from a term insurance policy that the nominee receives
Did You Know There Are Term Insurance Tax Deductions Under Section 80C?
According to the guidelines of Section 80C of the Income Tax Act of 1961, you are eligible to deduct the following expenses from a term plan:
- Up to a maximum of 1.5 lacks per year, the premium paid towards a term insurance plan may be used as a deduction from your taxable income. However, HUFs and individual taxpayers should be aware of the following to be eligible for this tax exemption.
- You will not be allowed to claim any income tax deduction for a term insurance plan issued after April 1, 2012, if the premium amount exceeds 10% of the total sum assured.
- If the premium amount for a term insurance plan issued before March 31, 2012, exceeds “20% of the total sum assured”, you will not be eligible for any income tax deductions.
- According to Section 80C(5), you will not be able to receive any tax benefits on the premiums paid if you surrender or terminate the plan voluntarily within two years of the policy purchase date.
Tax Benefits Of Term Insurance Under Section 80D
If you are concerned with tax planning, this is it! A term insurance policy might be the ideal addition to your insurance portfolio and ensure your family’s financial security. Affordably priced premiums and riders to increase coverage are available with term insurance plans. Also, you can enhance the advantages of term insurance through tax deductions. You can always use a term insurance calculator to work out the premium payable for a certain coverage amount.
You will find this amount to be quite reasonable in comparison to many other policies. As a result, you can think of adding riders to your plan to widen your scope of coverage and get additional tax benefits in turn. For example, section 80D benefits are applicable on premiums paid for health coverage. You can add a health-related rider to your term policy, like critical illness or hospital care, in order to get this benefit.
Here are the deductions applicable under Section 80D on premiums paid for the rider in question (NSC- Non-senior citizens, SC- Senior citizens):
| Parents are NSC, as well as oneself, one’s spouse, and any dependent children. | Self, spouse, and dependent children fall under NSC, and parents fall under SC. | Self, spouse, dependent children, and parents are all considered SCs. | |
| (A) The premium of one’s own, one’s spouse’s, and one’s dependent children’s health insurance | Rs. 25,000/- | Rs. 25,000/- | Rs. 50,000/- |
| (B) The premium of parents’ preventative health exams and medical insurance premiums | Rs. 25,000/- | Rs. 50,000/- | Rs. 50,000/- |
Tax Benefits Of Term Insurance Under Section 10 (10D)
Section 10 (10D) ensures tax exemptions for the amounts received by nominees in term insurance policies. This gives you greater peace of mind since you know that they will receive a lump sum amount without any deductions owing to taxes and can fully use the same to meet their financial goals. In addition, the amount paid by the insurer is fully exempted from taxes under Section 10 (10D) in this case since term insurance payouts only result from death claims.
Even while a term insurance policy has several tax advantages, you should remember that this shouldn’t be your only justification for purchasing this type of life insurance. Remember that tax deductions/exemptions are one benefit of a term plan. The strategy, however, provides much more than simply this. It gives your loved one financial security, gives you peace of mind, and assures you that your family members can achieve their objectives even when you are not there. Therefore, all Indian households should use this financial instrument as an essential addition to their portfolio.
