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Making Term Insurance a Vital Part of Your Tax Planning Strategy

by Admin

Term insurance is a straightforward and cost-effective way to provide financial protection for your family in case of an unfortunate event. In addition, term insurance policies are usually less expensive than many other plans, making them more accessible to a broader section of customers. The popularity of term insurance plans in India does not only have to do with peace of mind and guaranteeing financial security for the family in the policyholder’s absence. There are several term insurance tax benefits that make these policies more appealing to customers. 

 

This is why term insurance should be a crucial part of your tax planning strategy, as per experts. Here’s learning more about this aspect. 

 

Tax Benefits Offered By Term Insurance Policies

Term insurance is one of the most-coveted financial products in the tax season, and this is not without reason! Here are some of the tax benefits that are available on term insurance plans for policyholders. 

 

  1. Deductions under Section 80C- Section 80C of the Income Tax Act offers sizable tax deductions for policyholders up to Rs. 1,50,000 on the premiums they pay on their policies. This means that the amount will be deducted from their taxable income, lowering their tax liabilities and helping them get higher savings. 
  2. Exemptions under Section 10 (10D)- As per Section 10 (10D), the sum assured paid out to the nominees of the policyholder by the insurance company will be exempted from taxes. Regular-term insurance policies do not offer maturity benefits. However, if the customer chooses a term insurance policy with the return of premium option, then there are maturity benefits since the premiums paid are refunded after deducting certain charges. In this case, if there is a maturity benefit surpassing Rs. 1 lakh, then the insurance provider will deduct 1% as the TDS (tax deducted at source) from the lump sum payout. If it is less than Rs. 1 lakh, then there will be no TDS deductions. 
  3. Deductions under Section 80D- Section 80D of the Income Tax Act offers deductions on the premiums paid for health coverage. Adding a critical illness rider to a term insurance policy will help policyholders get up to Rs. 25,000 deducted from their taxable income under this section if they are less than 60 years of age. If they are senior citizens, the deductible amount goes up to Rs. 50,000. 

 

These are the significant tax benefits available if you invest in term insurance plans in India. Including term insurance in your tax planning strategy can help you save money and provide financial security to your family simultaneously. Yet, is the tax advantage the only reason for choosing term insurance plans? Obviously not! Here are some other reasons why you should choose these policies as basic additions to your portfolio. 

 

Some Additional Reasons For Choosing Term Insurance Plans

  • Term insurance is comparatively cheaper than many other types of policies. You can get relatively higher coverage for a lesser premium amount. 
  • Term insurance offers coverage for a lengthy and fixed duration. This will be sufficient to extend till your retirement or even the length of your mortgage or till your child completes higher studies. 
  • Term insurance policies are pure and straightforward investments, which are easier to understand and compare. 
  • Term insurance guarantees the family’s financial security in case of the demise of the policyholder within the policy period. This lump sum payout helps the family maintain living standards while achieving future goals. 

 

To get the most out of your term insurance plan, make sure that you buy it as early as possible. The earlier you purchase term insurance, the lower your premium will be since insurers will perceive you as a low-risk customer. Term insurance will help you increase your portfolio’s tax efficiency while giving you higher mental peace since your family’s financial future will always be safeguarded. While choosing your policy, ensure that you choose a suitable coverage amount to take care of your family’s future needs without forgetting inflation. Also, check the premium amount you have to pay for specific coverage. 

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