Best Life Insurance Policy for Tax Savings
Published On Jun 18, 2021 11:00 AM By InsuranceDekho
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Besides providing life coverage and rider benefits, life insurance policies also offer tax benefits to the life assured, consequently enhancing their financial conditions by saving taxes. The tax savings act merely as a cherry on the top of various life insurance policy advantages. It is advisable not to treat your life insurance policy as an investment option altogether.
Read on to know more about how a life insurance policy helps in tax saving.
Life Insurance Tax Benefits Offered Under the Income Tax Act, 1961
Here is a list of tax benefits that are offered under the Income Tax Act.
1. Section 80C - Under this, a claim for deduction from the taxable income to pay premiums for the life insurance policy for life assured, respective spouse or dependent child can be made by him/her.
2. Section 10(10D) - Under this, the sum assured provided as the maturity benefit or death benefit to the life assured or the beneficiary, respectively, are exempt from taxes under some specified conditions.
3. Section 80CCC - Under this, the tax benefit can be claimed on the payable premium on some pension or retirement policies.
4. Section 10(10A) - Under this, a commuted pension, i.e., the aggregated pension instead of a monthly pension provided to a government employee is tax-free.
5. Section 80D - Under this, a claim for deduction on the payable premium of health insurance for the life assured, respective spouse or dependent child or parents can be made by him/her.
Life Insurance Policies Which Provide Tax Benefits
Here are some kinds of life insurance policies that provide good tax benefits to the life assured.
1. Whole Life Insurance Policy
A whole life insurance policy is an essential financial decision that provides financial security to the policyholder’s family and dependants in case of an unfortunate event. Under this, Section 80C of the Income Tax Act helps is applicable on a cap of Rs. 1.5 Lakh. In addition to this, Section 10(10D) helps save taxes on the survival benefit, the maturity benefit, and the death benefit.
2. Term Insurance Policy
Unlike a life insurance policy, a term insurance policy is provided for a definite duration. The beneficiary would get the death benefit if the life assured passes away within the term-end. The life coverage benefits are also offered as a lump sum or monthly income for a specific period or sometimes both. The policy does not provide maturity benefits. Under this, Section 80C of the Income Tax Act offers deduction up to Rs. 1.5 Lakh. The death benefits received by the beneficiary are exempt from taxes.
3. Unit-Linked Insurance Policy (ULIPs)
ULIPs provides a life insurance policy with investment benefits like investing in bonds, stocks and mutual funds. The insurance provider invests a part of your premium paid in debt, equity and other securities and the rest of the amount is stored as insurance cover. Under Section 80C of the Income Tax Act, the life assured is eligible for a tax deduction on the premium payments. Furthermore, Section 10(10D) helps in getting return exemptions on the maturity of the policy.
4. Retirement Insurance Policy
The policy helps in gaining financial security during retirement by providing pension benefits in the vesting period. The beneficiary would get the death benefits if the life assured passes away. Under this, Section 80CCC and Section 10(10A) are applied according to specific conditions.
The desire to save taxes should not be the only reason behind purchasing an insurance policy. It is advisable to look into different aspects of the plans to ensure the financial security of your beneficiary and dependents after you. So, you can select the right insurance plan from the mentioned policies which fulfill your needs.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.