Around the end of the fiscal year, everyone looks into financial instruments that can assist in tax planning and savings. Among these alternatives, purchasing a life insurance policy has perennially been among the most common choices.
In addition to affording the policyholder life cover and providing protection and financial security for the family, term insurance plans can also provide tax benefits. Term plans are just one type of life insurance plan that can do this.
But what is term insurance? The most straightforward and basic type of life insurance is called term insurance. Your family can enjoy the highest level of financial security possible at the most reasonable premiums.
1. Tax Deductions for Paid Premiums in Certain Cases
Insurance premiums have been eligible for deductions from taxable income for many decades now as an incentive for individuals to purchase insurance coverage. The premiums for term insurance are also included in this category. As per Section 80C, a taxpayer may be able to deduct from their taxable income life insurance premiums of up to 1.5 lakhs per year, provided that they comply with the other provisions of said section.
In addition, the Income Tax Act of 1961, Section 80DD, allows for a deduction in the amount of premium paid for the maintenance of a dependent who is a person with a handicap, up to a maximum of 75,000 rupees (1.25 lacs in the case of a person with a severe disability).
Therefore, if you include a term insurance plan as part of your financial portfolio, you may count on these term insurance tax benefits to help you realise your goals.
2. Tax Exemptions on Insurance Payout
In the case that the life assured passes away unexpectedly, the policy is cashed in, and any payouts from the insurance policy that are received by the life assured’s family are free from taxation in accordance with Section 10 (10D) of the Income Tax Act of 1961. Because of this, you can have peace of mind knowing that your family will be able to use the whole amount of the insurance payout without having any portion of it withheld to pay taxes.
In addition, no maximum amount can be deducted, resulting in term insurance payouts being entirely exempt from taxation. This ensures that the life goals you and your family have set for yourselves will be achieved on time and in their totality.
3. Determine whether you want a policy with a single premium or one with regular premiums
It is more convenient for someone with a significant sum of money sitting idle in the bank to pay a single premium that is paid upfront rather than multiple premiums. This is in lieu of the typical premium payments made periodically easy for the holder – monthly, quarterly, semiannual, or annual. However, paying regular premiums is the preferable option for saving money on taxes. This is because Section 80C from the Income Tax Act of 1961 allows for tax benefits to be obtained from either form of insurance.
Consequently, the term insurance tax benefits of either type of policy can be obtained. Therefore, premium payments of up to 1.5 lakhs per year can be deducted from taxable income; however, premium payments greater than 1.5 lakhs are subject to taxation. In the case of a term insurance policy with regular premium payments, it is possible to deduct this sum at any time during the policy’s life. On the other hand, a single-premium policy would only qualify for this rebate in the year that the premium was paid; in addition, if the total amount paid for the insurance was greater than the limit, the balance of the premium would be subject to taxation. * Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
What is term insurance good for? If you have bought a good life insurance policy, you can be at peace knowing that your loved ones will be able to continue living their lives to the fullest even after you are no longer around to provide for them financially. It is simple to understand why term insurance plans are such a well-liked method of reducing one’s tax liability, given the alluring tax advantages that come with these policies.
You may be assured that your taxes are lowered during the duration of the policy with a regular premium term plan, and you can also be certain that if the policy is cashed in, the payout that is given to your loved ones will be free from taxation. Your mind will be at ease with a term insurance plan, and you will save money on income tax both during the plan’s whole duration and when the benefits are paid out.