Around this time of year, when the fiscal year is coming to a close, we have a habit of looking into financial instruments that can assist us in tax planning and savings. Of these alternatives, purchasing a life insurance policy has perennially been one of the most common choices. A term plan is an example of this type of life insurance plan that offers tax benefits, provides the policyholder with life cover, and offers protection and financial security to the family.
- Tax deductions for paid premiums
Insurance premiums have been eligible for deductions from taxable income for many decades to incentivise individuals to purchase insurance coverage. The premiums for term insurance are also included in this category. Under Section 80C of the Income Tax Act of 1961, taxpayers may be able to deduct from their taxable income life insurance premiums up to 1.5 lakhs per year, provided that they comply with the other points of said section.
In addition, the Income Tax Act of 1961, Section 80DD, allows for term insurance tax benefits in respect of premiums paid for the maintenance of a dependant with a handicap up to the amount of Rs. 75,000 (or Rs. 1.25 lakhs in the event of a person with a severe disability). If you include a term insurance plan in your financial portfolio, you may count on these tax savings to help you realise your goals.
- Tax exemptions on an insurance payout
If the life assured passes away unexpectedly, the policy is cashed in. Any payouts from the insurance policy received by the life assured’s family are free from taxation per Section 10 (10D) of the Income Tax Act of 1961. Because of this, you can have peace of mind knowing that your family can use the entire term plans payout without having any portion of it withheld to pay taxes. In addition, no maximum amount can be deducted, resulting in term insurance payouts being entirely exempt from taxation. It ensures that the life goals you and your family have set for yourselves will be achieved on time and in their totality.
- Choose whether you want a policy with a single premium or one with regular premiums
It is more convenient for someone with a significant sum of money sitting idle in the bank to pay a single premium that is paid upfront rather than multiple premiums. It is in place of the typical monthly, quarterly, semi-annually, or annual premium payments. Yet, paying regular premiums is the preferable option in terms of saving money on taxes. This is because Section 80C of the Income Tax Act of 1961 allows for tax benefits to be obtained from either form of insurance.
Thus, the term insurance tax benefits of either type of policy can be obtained. Hence, premium payments of up to 1.5 lakhs per year can be deducted from taxable income; however, premium payments greater than 1.5 lakhs are subject to taxation.
In the case of a term insurance policy with regular premium payments, it is possible to deduct this sum at any time during the policy’s life. On the other hand, a single-premium policy would only be qualified for this rebate in the year that the premium was paid; in addition, if the total amount paid for the insurance were greater than the limit, the balance of the premium would be subject to taxation. It is also important that you check the premium you will be paying. You can do so with a term insurance calculator.
If you have a term plan in place, you can be at peace knowing that your loved ones can continue living their lives to the fullest even after you are no longer around to provide for them financially. It is simple to understand why term insurance plans are such a well-liked method of reducing one’s tax liability, given the alluring tax advantages that come packaged with these policies.
You may be assured that your taxes are lowered during the duration of the policy with a regular premium term insurance plan. You can also be confident that if the policy is cashed in, the payout given to your loved ones will be free from taxation.
That is why you must do your due diligence beforehand and check the premiums to be paid regularly using the term insurance calculator to avoid burdening you financially later on. We hope the article has provided information on saving tax using term insurance. Now you can plan your family’s future and realise your dreams simultaneously.
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 per the IRDAI-approved insurance plan. Standard T&C apply
