Understanding Tax Benefits Under Term Insurance
Published On Dec 06, 2021
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Term insurance is an example of a tax-saving tool. In addition to receiving a tax benefit from term insurance, policyholders also receive safe life insurance coverage for their family and can avoid stress in the long run.
A range of deductions and exemptions are available under various provisions of the Internal Revenue Code to help you save money on taxes (Income Tax Act). These deductions and exemptions are available to taxpayers who invest in a wide range of securities. The deadline to invest in tax-deferred vehicles is March 31, 2020.
Term insurance is a type of insurance that provides coverage for a specific period of time A term insurance policy, as the name suggests, is a policy that covers you for a set period of time. It guarantees a high sum of money for a cheap premium. The sum assured is paid to the policyholder's nominee if the policyholder dies during the policy period.
You can fulfil your responsibility of giving financial security to your family in your absence by purchasing term insurance. In the process, you can also get tax advantages. Many consumers are unaware that term insurance policies offer numerous tax advantages, making it one of the greatest life insurance options available. But wait, the tax advantages of a term insurance policy and moneyback are identical. On both types of insurance policies, you get the same advantages.
Tax Benefits On Term Plans Under Different Conditions
As previously stated, you can take advantage of a number of term insurance tax benefits. A few examples are as follows:
Section 80C Deductions
The premiums you pay for term insurance can help you save money now by allowing you to deduct them from your taxes. Section 80C allows you to deduct up to 1.5 lakh. Section 80D of the Income Tax Act allows for tax benefits on health insurance premiums. You can get tax savings if your term insurance or money back plan has a Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, or other add-on cover.
Benefits Under Section 10 (10D) of The Income Tax Act.
The tax benefits are also extended to the death benefit paid to the nominee under Section 10 (10D). When a tragic event occurs, the family receives the policyholder's death benefit or amount assured, ensuring that the family receives the necessary financial protection while avoiding taxes.
The Income Tax Act of 1961, Section 10 (10D), essentially provides for exemptions. Any amount received as a death benefit or maturity benefit for a term or moneyback plan, including any bonuses, is tax-free. It makes no difference if this money comes from India or another country.
When a policyholder chooses not to have the benefit paid out immediately, the benefit amount may be subject to tax. In this situation, the insurance company holds the money until it is paid out, and the money is paid out after a period of interest accrual. This accumulated interest is normally taxed.
Everyone looks for methods to save money, especially when it comes to taxes. There are several features of term insurance in income tax that you should be aware of.
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.