Tax Benefits in Term Insurance Plans
Updated On Jul 14, 2021
Table of Contents
The primary goal of buying life insurance is to provide a financially secure future for your loved ones when you pass away. Its advantages, however, are not confined to financial security. Loan/debt payback provisions, tax benefits, future planning for your children/dependents, retirement planning, and other perks are all available with the right term insurance plan. The following article goes into greater detail about the tax benefits granted by term life insurance policies.
What is a Term Insurance Policy?
It is the most reasonable and popularly used policy plan that pays death benefits to the nominee if the life assured dies before the policy is completed. The contract tenure might range from 5 to 65 years, depending on the life assured's current needs and future ambitions. Furthermore, the policyholder pays periodic premiums to ensure that the coverage remains valid for the specified period.
Tax Benefits in Term Insurance Plans
The tax benefits which can be availed in term insurance policy are as follows.
1. Tax Benefits Under Section 80C
Section 80C of the Income Tax Act provides tax benefits on the payable premium amount of a term insurance policy purchased by the life assured or on behalf of his/her spouse or children. The provision allows you to save up to Rs. 1.5 lakhs in a single year. It should be noted that plans purchased before March 31, 2012, are eligible for tax benefits if the premium price is less than 20% of the term life insurance policy's total sum assured. However, plans purchased after April 1, 2012, may qualify for tax savings if the premium rate was less than 10% of the policy total sum assured. Moreover, suppose you want to be eligible for tax benefits on a term insurance policy for a disabled person (Section 80(U)) or a term insurance policy for an ill person (Section 80DDB). In that case, the policy must have a premium percentage of less than 15% of the sum assured.
2. Tax Benefits Under Section 10(10D)
Section 10(10D) of the Income Tax Act provides tax exemptions on maturity or death benefits granted to the life assurance or beneficiary, respectively. Even though these advantages have no upper limit, they may only be offered under certain circumstances. For example, the premium percentage should be less than 20% of the sum assured; only then can tax exemptions be granted. However, because the sum assured of a term insurance policy is typically more than the annual premium, such circumstances are uncommon.
Conclusion
It is crucial to understand that you should not purchase a term insurance policy merely to save money on taxes. Instead, it's vital to choose a suitable life insurance policy with a sufficient sum assured, which will assist your family in the event of your death. As a result, these tax advantages should be considered extra benefits that come with term insurance coverage. Furthermore, you can speak with a financial counsellor or an insurance agent to determine the specific tax benefits available on your tax rates and term insurance plan.
You may also like to read:-
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.
