There is one thing that everyone works towards – peace of mind that financial security brings. This can only be achieved if you are able to build a savings corpus that is worthwhile. The good news is that a term plan gives you both – security as well as savings. As you know, a term plan is a pure protection plan that protects your family’s financial future by providing them with a sum assured in case anything unfortunate were to happen to you. Term plan is the most affordable insurance as it can provide a large life cover for a low premium. Even better, term insurance tax benefit can give you immense savings, which can be further reinvested to grow your wealth.
Focus on the term plan, not the taxes.
Term insurance offers you tax benefits. You have heard term insurance tax benefit sections such as 80C or 80D and must be wondering if term insurance comes under 80C or 80D. Term insurance tax benefit comes under section 80C .
Section 80C: tax savings on premiums paid.
Thank the IT department for this as this section reduces your tax liability. Under Section 80C of the Income Tax Act, 1961, you can get term insurance tax benefit of up to Rs. 1.5 Lakh for the premiums you pay towards your term insurance policy. Now, isn’t that a huge saving!
Before you get excited, here are some important points to note regarding term insurance premium tax benefit.
The deduction applies only if your annual premium is less than 10% of the sum assured, or else term insurance tax benefits under Section 80C will be applicable proportionately.
If your term insurance was issued prior to March 31, 2012, you are eligible for term insurance premium tax benefit only if the annual premium is less than 20% of the sum assured or else term insurance tax benefits under Section 80C will be applicable proportionately.
You can claim term insurance tax benefit only if the policy is valid. If your policy is terminated due to incomplete premium payment, you not only also lose the life cover, but your dependants also lose their financial security.
GST is applicable on all premium payments.
For more details on tax benefits under 80C use our income tax calculator.
Section 80D: tax savings on additional riders
Add a Critical Illness Cover rider to your term plan and get additional tax benefit. Section 80D allows tax benefits on health insurance premiums. You can easily avail of this by adding a health-related rider to your term policy to increase your savings further.
To explain with an example, assume you have purchased three term plans with your wife and two children as beneficiaries. You have also purchased two term plans for your parents who are 60+ years.
If all five policies have an additional Critical Illness Cover, Section 80D allows you to claim Rs. 25,000 as deduction for all three policies. If your parents are above 60 years, you can claim Rs. 50,000 as deductions So you stand to gain a total saving of Rs. 75,000 as health insurance deduction in income tax. This saving can be further invested in other instruments to grow your money.
Now that you have understood which aspect of your term insurance comes under which section 80C or 80D, let us move on to another important section.
Section 10 (10D): tax savings on death benefit
Worried that the tax liability will eat into the sum assured your family receives? Section 10(10D) ensures that this entire amount is tax-exempt, provided that the premium payable during the policy period does not exceed 20% of the pre-defined sum assured. Also insert 10% criteria along with policy issue date as mentioned in above point.
Who is eligible to claim term insurance deduction in income tax?
Any individual and a Hindu Undivided Family (HUF) can claim term insurance deduction in income tax.
Which term plans will give the best benefits?
IndiaFirst Life Guaranteed Protection Plus Plan and IndiaFirst Life Plan are two plans that can help reduce your tax liability. Both these plans secure your family financially with high term cover and can even be availed of by unmarried individuals.
IndiaFirst Life Guaranteed Protection Plus Plan is a unique term life insurance plan that offers innovative coverage options, convenient premium payments, and Return of Premium and Waiver of Premium options.
IndiaFirst Life Plan is a fuss-free, pure term insurance plan that offers comprehensive financial protection at an affordable price.
Term insurance may be a basic plan but think about the numerous advantages it offers - life cover that keeps your family protected, tax savings that can be further reinvested to earn returns, health covers that protect you by reducing your liability from unforeseen ailments or accidents. If you still haven’t invested in a term policy, do so at the earliest and take advantage of the benefits it offers.
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