Saving money is an essential part of life for every person. And as you grow older, you will need to save more for your family in case something unfortunate happens to you. You need to be careful about how your dependents will manage if you are the sole breadwinner of the family. In that light, you can also purchase a term plan to receive tax advantages. One can benefit from term insurance tax advantages while purchasing life insurance. However, you must know several term insurance benefits and income tax aspects.
Term insurance: What is it?
The most straightforward life insurance coverage, term insurance, offers protection against the unfortunate passing of the policyholder for a predetermined amount of time in exchange for recurring payments of a predetermined premium. In plain English, the policy nominee will get a death benefit, as specified in the policy inclusion conditions, if the life insured passes away during the policy period.
Tax advantages of term insurance
You can use numerous term insurance tax benefits when you get an insurance plan. By providing these advantages, you can protect the financial future of a loved one while saving money on tax expenses.
Let’s take a closer look at the tax advantages of term insurance.
Article 80C
Section 80C of the Income Tax Act of 1961 governs the most fundamental tax advantages for term insurance that every Indian taxpayer may avail of. Many individuals believe that this Section is the most widely used tax-saving strategy.
Against the premiums paid to purchase a term plans, you can be eligible for tax savings on term insurance of up to Rs. 1.5 lakh under this Section.
A crucial aspect you should know about is that the upper limit of tax deductions available under this Section also includes:
- Tax benefits on investments in PPF (Public Provident Fund).
- Tax-saving Fixed Deposits.
- Several other tax-saving instruments.
By purchasing a sizable life insurance policy for yourself, you may optimise the tax advantages of term life insurance while also helping your family in the long run.
Important information about term insurance tax advantages under Section 80C
1. The term insurance plan’s yearly premiums can be up to 10% of the selected sum assured.
2. If the annual premium for term plans issued before March 31, 2012, is less than 20% of the total assured, the term insurance tax benefits in income tax are applicable.
Term insurance tax advantages
Article 80D
Tax deductions are generally permitted under Section 80D for health insurance premiums. Though indirectly, it also offers term insurance tax advantages. If you choose health-related riders like Critical Illness coverage or Surgical Care coverage, you could maximise the term insurance tax benefit under section 80D. In other words, by selecting these riders and receiving health insurance coverage, you can optimise tax savings with your term insurance premiums.
The maximum reward amount for term insurance under Section 80D
A term insurance plan is quite cost-effective, and by adding add-ons or riders to it, you can also gain further benefits. Also, you should be aware that pure-term insurance offers no survival benefits and has no financial value. Investing in a proper plan can obtain various other advantages, such as term insurance tax advantages. Use a term insurance calculator to understand the benefits fully.
Chapter 10 (10D)
With the financial advantages of term insurance, tax exemptions can help the life insured and their family members save money. The above falls under Section 10 of the law (10D). Simply put, the term insurance policy’s death benefit or maturity benefit is not subject to taxes. The various terms additionally govern this. These tax advantages for term insurance typically have no maximum limit.
As a holder of a term insurance policy, you should be aware that the Section 10(10D) tax benefits for term insurance are also subject to certain requirements. It stipulates that if the premium paid throughout the policy duration does not exceed 20% of the pre-defined sum assured, the maturity or death benefit payments under a term plan are not subject to taxation.
Also Read: Iganony
Tax advantages for term insurance add-ons
You may receive additional term insurance tax benefits based on your chosen rider with a term plan and associated circumstances.
1. When you add a critical illness rider to your term plan, you qualify for Section 80D tax deductions.
2. When added to a term plan at the time of purchase, riders like Return of Premium raise the premium, allowing you to maximise your Section 80C tax savings. You can use a term insurance calculator to see how the premium changes when riders are added.
There are 2 tax regimes in India – new and old. Choose the correct one after consulting an expert to get the tax benefit you desire. You can opt for a regime change during the next financial year.
All savings are provided by the insurer as per the IRDAI-approved insurance plan. Standard T&C apply
