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Endowment Plan Tax Benefits

For many, life insurance may be a long-term commitment. Therefore, choosing the right insurance plan may be one of the important decisions. For anyone thinking of buying life insurance, the primary motivation, might be the financial protection of their loved ones in their absence. To do so, one can choose from various types of life insurance. However, if you want more than the death benefit, it may help to narrow down the types of plans you can choose from. Endowment plans are one such popular dual benefit policies that offer you a life cover as well as a long-term savings opportunity

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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Endowment plans come with a host of benefits like death benefit, maturity benefit and survival benefit. Tax benefits are also something you should consider when choosing the suitable plan or buying one. If you buy an endowment plan, you can claim tax benefits in the form of deductions and exemptions as per the provisions of the Income Tax Act, 1961.

Before we better understand endowment plan tax benefits, let’s take a quick look at what are endowment plans, what they offer, and why you may consider getting one.

 

What are endowment plans?

 

To better answer the question, “What is an endowment policy?”, let’s first get a better idea of life insurance plans. Buying a life insurance policy is a contract between the policyholder and the insurance provider. As a part of the contract, the policyholder is required to pay premiums. On the other hand, the policy provider offers certain benefits against the premiums paid. While the range of benefits may differ based on the type of plan and insurer chosen, the death benefit is common across the numerous types of life insurance plans.

So, what is an endowment policy? It is the type of insurance plan that offers lump sum amount on maturity or on death. If all due premiums under the policy are paid, the policyholder will receive the survival benefit as money back and the maturity benefit on the maturity date, subject to the terms and conditions of the policy.

Based on the benefit offered, here are the type of endowment plans available today.

 

• Participating plans:

 

These type of endowment plans come with an additional bonus component. If during the term of the policy, the insurer earns profits, it may declare a bonus for the policyholders of these plans. The bonus is accrued over a period of time and may be offered as a part of the maturity benefit depending on policy terms and conditions.

 

• Non-participating plans:

 

If you seek guaranteed* maturity benefits on your endowment plan, go for a non-participating plan. They do not have a bonus component, but you receive a pre-decided amount at the end of your term duration, i.e., plan maturity.

 

• Unit-linked endowment plans:

 

As the name may suggest, these plans invest your money in a range of market-linked funds. Depending on what the insurance provider has to offer and your risk appetite, you may be able to choose the type of funds you want your money to be invested in. Just keep in mind that these plans come with a certain degree of risk, and hence, your maturity returns may vary depending on market conditions.

Besides maturity benefits, endowment policy tax benefits are also a factor to be considered when buying these policies. If you have opted for the old tax regime, you may be able to claim benefits for the premium paid under Section 80C of Income Tax Act, 1961, subject to provisions stated therein. Benefit received under the plan is tax free in the hands of recipient subject to satisfaction of conditions as mentioned in Section 10(10D) of Income Tax Act, 1961 subject to provisions stated therein.

 

Endowment policy tax benefits1

 

There are two types of endowment plan tax benefits that policyholders, nominees, as well as potential policy buyers, should be aware of. The first is the deduction that one can claim on the premiums. This is an deduction that is available under Section 80C of the Income Tax Act 1961 subject to satisfaction of conditions mentioned therein. This benefit can be useful for the policyholder paying the premium for the endowment plan. Deduction under this section can be availed of by the person paying the premium. Annually, one can only claim a deduction of up to Rs 1.5 lakhs under this section.

Another endowment policy tax exemption benefit is one that can be claimed under Section 10 (10D) of the Income Tax Act of 1961. This can be claimed on the benefits received from the plan. This includes the maturity benefit as well as the death benefit. Hence, if the policyholder survives the term duration of the plan and receives maturity benefit, they may be able to claim it as a tax exemption under this section. Similarly, if the nominee has received a death benefit from the policy, they may be able to claim an exemption under this section as well. This exemption is available on satisfaction of conditions as mentioned under Section 10(10D) only.

 

Should you get an endowment plan?

 

If you are looking for life insurance, endowment plans are one of the options you may consider. You may avail of survival benefits, maturity benefits as well as tax benefits on these plans, alongside the death benefit. Remember that deduction may only be claimed under Section 80C of the Income Tax Act 1961, if the claimant has opted for the old tax regime. Such claims cannot be made under the new tax regime2.

Remember to take a good look at all the features of the endowment plan you are considering and use an endowment plan premium calculator. This will help you get an idea of whether the plan is suitable for your pocket and will offer you the coverage you seek.

While tax benefits of endowment plans can be quite the pull, remember to consider the plan as a whole and see if it suits you. Also, once you buy the plan, update your nominee on what the plan has to offer.

Source Links:

1https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx

2https://www.livemint.com/money/new-income-tax-regime-vs-old-income-tax-regime-what-should-you-opt-for-in-2022-11644713424562.html

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This advertisement is designed for combination of Benefits of two individual products named (1) Bajaj Allianz Life Goal Assure II - A Unit- Linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L180V02). (2) Bajaj Allianz Life POS Goal Suraksha - A Non Linked, Non Participating, Individual, Life Insurance Savings Plan (UIN: 116N155V11). These products are also available for sale individually without the combination offered/ suggested. The customer is advised to refer to the detailed sales brochure of respective individual products mentioned herein before concluding the sale.


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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

*Conditions Apply – The guaranteed benefits are dependent on the purchase price & annuity option chosen. For more details please refer to sales brochure.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Bajaj Allianz Life Insurance Company Limited is only the name of the Life Insurance Company and Bajaj Allianz Life Goal Assure II - A Unit- Linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L180V02) is only the name of the unit linked insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.For more details on risk factors, terms and conditions, please read sales brochure carefully before concluding a sale.

*Conditions apply- The Guaranteed benefits are dependant on the policy terms, premium payment terms availed along with other variable factors. For more details please refer respective product sales.(Also available on www.bajajallianzlife.com). This benefit is available with Bajaj Allianz Life Pos Goal Suraksha. brochure.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

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2Above illustration is for Bajaj Allianz Life eTouch II- A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N198V01) considering Male aged 23 years | Non-Smoker Preferred | Annual Income =>Rs. 15,00,000 per annum | Indian Resident | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 2,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 7,159. 2nd Year onwards premium is Rs. 7,760. Total Premium is Rs. 2,32,199 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage : 40, Income Payout Percentage : 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency, applicable only on first year’s premium.

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy. Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

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Health Management Services Frequency Cost (₹)
Doctor Insta-Consultations 3 consultations per month = 36 consultations per year Average cost per session = ₹500
Total cost per year = ₹500 * 36 = ₹18,000
Health Coach
(Diet & nutrition consultations)
1 consultation per month =
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Network discounts: Throughout the year Assumption – Total expense on these services throughout the year
Medicines (M) = ₹5,000
Lab-test booking (L) = ₹5,000
Total discounts that can be availed:
M - 10% = ₹500
L - 10% = ₹500
Total per year as per assumption ₹31,000

Note: The above mentioned costs are based on estimated average market price for respective services. T&C apply.

Doctor Insta-Consultations and Health Coach Services are unlimited and the above numbers are assumed only for the purpose of calculation of the yearly benefit.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

 

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