Every year, around the end of the financial year, we tend to seek out financial instruments which help us in tax planning and savings. Of these, buying a life insurance policy has always been a popular option. Term insurance plan is one such life insurance plan which provides tax benefits, in addition to offering life cover to the policy holder and providing protection and financial security to the family.
1. Tax Exemptions on Premiums Paid
To encourage citizens to buy insurance, insurance premiums have been eligible for deductions from taxable income for decades. Term insurance premiums fall under this category too. Life insurance premiums up to 1.5 lakhs per annum are eligible for deductions from taxable income under Section 80C of the Income Tax Act 1961 subject to provisions contained therein.
Further, Section 80DD of the Income Tax Act, 1961 provides for deduction in respect of premium paid for the maintenance of a dependent being a person with disability up to ` 75,000 (` 1.25 lac in case of a person with severe disability).
Hence with a term insurance plan in your financial portfolio, you can count on these tax savings to fulfil your dreams.
2. Tax Exemptions on Insurance Payout
In the event of the unfortunate death of the life assured, the policy gets encashed and the insurance payout received by the family members are exempt from tax under Section 10 (10D) of the Income Tax Act 1961. Hence you can be rest assured that your family can utilize the entire amount of the insurance payout without having any amount deducted for taxes. Further, there is no upper limit to this, hence rendering term insurance payouts completely tax-free. This means that your family's life goals will continue to be met on time and in their entirety.
3. Opting for a Single Premium or Regular Premium Policy
If one has a large sum of money lying idle in the bank, it is convenient for them to pay a single premium which is paid upfront. This is in lieu of regular monthly, quarterly, half-yearly or yearly premiums. However, from a tax-saving perspective, paying regular premiums are a better option as the tax benefits of either type of policy are available under Section 80C of the Income Tax Act 1961. Hence, premiums up to `. 1.5 lakhs per annum are eligible for deduction from taxable income, while the premium over and above ` 1.5 lakhs is taxable. In the case of a regular premium term insurance policy, this amount can be deducted throughout the policy term. In contrast, a single-premium policy would only be eligible for this rebate in the year that premium has been paid, and if that sum exceeds the limit, the remaining premium would be taxable.
With a life insurance policy in place, you can rest assured that your family will be financially secure and be free to pursue their dreams even in your absence. Given the attractive tax benefits that term insurance plans come with, it's easy to see why they are such a popular tax-saving financial instrument. With a regular premium term insurance plan, you can be certain that your taxes are reduced during the policy term as well as knowing that if the policy is encashed, your loved ones will receive a tax-exempt payout. Term insurance plan gives you peace of mind, all while saving income tax during its entire tenure and upon its disbursal.