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Term Insurance Comes Under Which Section?

Term insurance under which section

Term Insurance Comes Under Which Section?


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June 25, 2020

By : Bajaj Allianz Life

A term insurance plan provides tax benefits under section 80C and section 10(10D) of the Income Tax Act 1961. As per section 80C, the premium that you pay for your term insurance plan can be deducted from your total income. As a result, this brings down your taxable income, thereby also reducing your tax liability. You can claim up to Rs. 1,50,000 of your term insurance premiums as a deduction under this section. Under section 10(10D) of the Income Tax act, 1961 ,the benefits obtained from a term insurance plan are also exempt from tax, provided the sum assured is at least 10 times the annual premium paid. The above mentioned tax benefits are subject to provisions of Income Tax Act, 1961, as amended from time to time.

If you are a bit uncertain about the answer to the question, “what is term insurance?” read on to find out.

 

What is term insurance?

 

A term insurance plan, also known as pure life insurance, is a kind of insurance plan that provides coverage for a specified period. In case of the demise of the insured during the policy term, a term plan guarantees the payment of specified benefits to the insured person’s nominee subject to the terms and conditions mentioned under the policy.

To obtain this life cover, the policyholder pays premium to the insurer. The premium to be paid by the policyholder is determined by the insurer. Typically, it depends on various factors such as the age of the policyholder, gender, health, occupation etc.

 

What are some features of a term insurance plan?

 

Now that you know what term insurance is, it’s time to learn of some features of a term plan.

• Affordability

Pure term plans are generally more affordable when compared with other insurance plans. Since term insurance plans only have an insurance component, the premium charged is comparatively cheaper.

• Ease of purchase

It is also very easy to buy a term insurance plan. You only need to decide on the amount of sum assured in keeping with your life goals. You can make use of online calculators to figure out the right sum assured needed to meet your life goals. Thereafter, you can buy a term plan either online or offline.

• Tax benefits

Term insurance tax benefits are another important feature of this investment option. The premium paid for term plans qualifies for tax benefits under section 80C of the Income Tax Act 1961, while the sum assured is tax-free as per section 10(10D). These tax benefits are subject to the provisions contained in Income Tax Act 1961.

 

What are the benefits of term insurance?

 

Purchasing a term insurance plan can be very beneficial to you, as the investor, and to people who may be financially dependent on you, like your children, spouse, or aged parents. You can enjoy many advantages by buying a term plan. Here is a closer look at some of them.

• Life Cover at Nominal Cost

Pure Term life plans are extremely affordable, as they do not include any maturity benefit, which means the premium that you pay, is utilized to cover your life. In addition to this advantage, most term plans offer a high amount of life cover, going up to Rs. 1 crore or higher. The fact that such a significant life cover can be obtained at a relatively low cost is a definite advantage of term plans. One can always choose the life cover after assessing their own needs and make a decision as per their risk appetite.

• Security for your family’s future

A term plan ensures that your family’s financial situation remains largely unaffected in the case of your sudden, unfortunate demise. If your family includes many dependents, or if they rely on your income to meet their expenses, the sum assured paid out by the insurer can help them get through those tough times.

• Tax-benefits

Owing to the tax benefits mentioned in the Income Tax Act 1961, your beneficiaries need not even worry about the burden of additional tax liability on the amount paid by the insurer. They can use the financial pay-outs to meet significant expenses such as debt repayments, higher education costs, or wedding expenses without the worry of any tax dues.

 

Why should you buy term insurance early in life?

 

You should buy term insurance early in life because it is a prudent investment decision to make. Purchasing term insurance at an early age has many advantages. One such benefit is that you get to pay lower premiums. The premium charged for a term insurance plan increases with age. Therefore, if you buy your insurance cover earlier in life, it makes sense that you can enjoy lower premium rates.

Additionally, when you purchase a term plan early in life, you can rest assured that the future of your family is secured, should something untoward happen to you. This knowledge eliminates a great deal of worry, particularly if you have a dependent spouse, young children, or aged parents who depend on you. In addition, by purchasing term insurance earlier in life, you can take advantage of the term insurance tax benefits to reduce your tax liability.

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