Income Tax Benefits with Life Insurance Plans
Life insurance is one of the most preferred investment options to save taxes. Tax can be saved through deductions and exemptions on the premium paid by the policyholders. Taxpayers may save a significant amount of tax with timely investment in the life insurance plan.
Section 80C of the Income Tax Act, 1961 allows individuals to claim a deduction for the investments made under different financial instruments. Individuals and Hindu Undivided Family (HUF) may claim a maximum deduction of INR 1.5 lakh under Section 80C.
Benefits of term life insurance
Taxpayers may claim a deduction for the amount of premium paid by them on the life insurance policy. A deduction on premium up to 10% of the sum assured is allowed to individuals. Individuals may also claim a deduction for the premium paid for their spouse and children. In case of an HUF, any member of the family is eligible for the deduction. Term insurance provides a complete coverage at fixed premium payments. It has a low premium and offers tax benefits to the policyholders. Term insurance covers death and disabilities and offers a comprehensive life cover.
Policyholders under term life insurance may receive tax exemptions under Section 10(10D) of the Income Tax Act, 1961. The amount that the assesse receives from the insurance policy will be exempt from tax. This includes bonus and death benefits as well. There are certain circumstances where this rule is not applicable. Any sum received by the policyholder under Section 80DD (3) of the Income Tax Act, 1961, any sum received via a key man insurance policy, and any amount received under an insurance plan which was availed of on 1st April 2003 or later, will remain as an exception to the rule.
Apart from the term insurance, there are different types of life insurance plans available in the market. These include whole life insurance, endowment policy, annuity plans, children’s policy, and money back plan. Different insurers offer the policies with various features. A term insurance is a policy where the premiums are paid for a fixed period and mainly offers death benefits. However, a whole life insurance is a policy you pay for until your demise. A number of financial institutions offer life insurance policies to individuals based on their requirements and the ability to pay the premiums. It is now possible to buy life insurance online and have the documentation processed in no time. Individuals may also compare the rates and the features offered by various financial institutions on the Internet. In order to take the benefit of tax exemptions, it is advisable to opt for plans that provide a life cover and are eligible for the deduction under the Income Tax Act, 1961.