A multitude of life insurance plans are available on the market. Endowment plans, whole life insurance plans, annuity plans, and money plans are among the many insurance plans available. Each of these insurance plans has a particular financial target, ranging from person to person.
Term insurance plans provide you with life insurance for a set length of time in exchange for the regular payment of a set premium. If the life guaranteed dies within the policy period, the policy nominee will receive a death benefit under the policy inclusion provisions.
What is Term Insurance?
Term insurance plan, the most basic form of life insurance policy, provides an individual with life insurance coverage for a set length of time in exchange for the regular payment of a set premium. If the life insured dies during the policy period, the policy nominee would receive a death benefit as stipulated in the policy inclusion conditions.
A term insurance plan is quite reasonable, and you may get even more benefits by adding add-ons/riders to it. You should also be aware that a pure term insurance plan has no monetary value and provides no survival benefit. However, you may obtain several other benefits by investing in a good plan, such as term insurance tax benefits.
Who Can Receive Term Insurance Tax Benefits?
Section 80C allows both HUFs (Hindu Undivided Families) and individual taxpayers to deduct the cost of term insurance plans. Individual taxpayers can claim Section 80C deductions for the following premiums:
- The taxpayer.
- The spouse of the taxpayer.
- The children of the taxpayer.
Conditions for Term Insurance Tax Deductions
Certain requirements must be met to be eligible for Section 80C tax deductions.
- Tax deductions are available for anyone who purchased a term insurance plan after April 1, 2012, if the premiums paid are less than 10% of the ‘Sum Assured.’
- Tax deductions are permitted for individuals who issued their insurance policy on or before March 31, 2012, providing the premiums paid towards the coverage do not exceed the limit of 20% of the Sum Assured.
- Tax reductions are available to persons with severe impairments or specified diseases who have not paid premiums totalling 15% or more of the Sum Assured at maturity. This clause is still in effect for term insurance plans issued on or after April 1, 2013.
Tax Benefits of Term Insurance Plan
When you purchase a term insurance plan, you can take advantage of not one but many term insurance tax benefits. These perks allow you to save money on taxes while also safeguarding your loved one’s financial future.
Let’s take a closer look at the term insurance tax benefits to answer some common issues.
Section 80C of the Income Tax Act of 1961 governs the most basic term insurance tax benefits that every Indian taxpayer can obtain. Indeed, many individuals consider this section the most popular tax-saving strategy. Term insurance tax benefits of up to Rs 1.5 lakhs are available under this section for the premium paid for purchasing the policies.
You should be aware that the maximum tax deduction allowed under this Section includes tax advantages on investments in the Public Provident Fund (PPF), tax-saving fixed deposits, and a variety of other tax-saving vehicles.
You may optimize term insurance tax benefits by purchasing a big life insurance policy for yourself, which will help your family members in the long run.
Section 80D primarily enables tax deductions for health insurance premiums. It does, however,indirectly give term insurance tax benefits. If you have chosen health-related riders such as Critical Illness cover, Surgical Care cover, and similar covers, you can take advantage of term insurance tax benefits under 80D.
In other words, if you choose these riders together with health insurance coverage, you may optimize your tax savings with your term insurance premiums.
Section 10 (10D)
Aside from the tax advantages of term insurance plans, the life insured and their family members can save money through tax exemptions. Section 10 addresses this (10D). The death benefit or maturity benefit from a tax insurance policy is tax-free. This is also subject to the numerous conditions specified.
There is no upper limit to the tax benefits of term insurance plans. It implies that the total sum received by you and your loved ones under the term insurance plan is tax-free. You should be aware that the Section 10 (10D) term insurance tax advantage is also subject to specific circumstances.
It is said that the maturity or death benefits of a term insurance plan are not taxable if the premium due throughout the policy duration does not exceed 20% of the predetermined sum insured.
Tax Benefits on Term Insurance Riders
Insurance companies use a variety of term insurance riders to give further coverage. Their advantages, however, do not stop at enhancing a term insurance policy’s main characteristics.
Additional term insurance tax advantages may be available depending on the rider you purchase with a term plan and related conditions. Here are a few ways that term plan riders can help you get more term life insurance tax breaks:
1. When you add a Critical Illness rider to your term insurance plan, you become eligible for tax breaks under Section 80D.
2. Riders such as Return of Premium, when selected while purchasing a term plan, raise the premium, allowing you to save more money under Section 80C. Using an online calculator, you can see how the premium changes as riders are added.
Wrapping It Up
Saving money is an essential component of life for everyone. Every individual seeks strategies to lower tax responsibility, especially when it comes to saving taxes. There are several features of term insurance in income tax that you should be aware of. This essay is written specifically for that purpose.
With this, you now know which provision of the Income Tax Act term insurance tax benefits fall under. There are several tax advantages to term insurance plans, but reducing taxes through term insurance should not be the primary goal. Term insurance is a must-have for protecting your family’s financial future. You may acquire comprehensive coverage at a low cost with a term insurance plan.
Having appropriate term insurance coverage allows you to live a stress-free life without worrying about the financial well-being of your family in your absence.