In a world where the quality of air is poor, there is adulteration in our food, majority of us have a sedentary lifestyle, and the outbreak of virus can kill millions of people across the globe in just a few months, taking the right measures to protect our families is of utmost importance. Although we may not succeed in securing our family completely from any health-related issues, we can take care of their finances even when we can not be with them anymore. All that we need to do is to buy the right term insurance plan.
Term insurance policies are the best way to leave a certain amount of money behind for the family for a situation when we pass away. However, the death benefit can be availed of by the beneficiaries only when the policyholder dies within the tenure of the term insurance policy. Also, make sure that while you are buying the term plan, you provide all the correct information about yourself and even disclose your smoking or drinking habit, if any. This will help the beneficiary to claim the death benefit without any problem.
There are many companies in the country today that offer term insurance plans. Also, the term plans vary from one company to the other as some policies come with the maximum entry age as 60, while some allow even 65-year-old individuals to purchase the term insurance policies. However, you must be aware of the fact that the more one’s age is, the higher the premium will be.
Term insurance plan not only helps the family of the deceased to support themselves, especially when the only earning member of the family has passed away, but it also helps the insured to save taxes.
How does term insurance help saving taxes?
As we talk about term insurance tax benefits, we must know that some provisions have been made by the Income Tax Department of India for the policyholders. The provisions help the insured to avail of income tax benefits over the premiums that are paid by them and the amount received on maturity. Tax benefits on term insurance can be availed under the section of the income tax act that is mentioned below:
- Section 80C
- Section 10 (10D)
- Section 80D
Under section 80C of the Income Tax Act 1961, tax benefits on total income can be availed for the premiums that are paid for an insurance policy. The policyholder can use the exemption limit of up to INR 1.5 lakhs per annum, which is subject to the conditions mentioned below:
- The yearly premiums that you pay must not exceed 10% of the total sum assured. In case it exceeds, deductions will be applied accordingly
- The policies that were issued before March 31, 2012, the deduction will be applicable provided the yearly premium paid does not exceed 20% of the sum assured
Section 10 (10D)
Under section 10 (10D) of the Income Tax Act, the amount that is received as a death benefit from a term insurance plan is totally tax-free. There is no need to pay any income tax, provided the below-mentioned conditions are met.
- If the policy was issued on or before April 1, 2012, the premium paid for the plan should not exceed 20% of the sum assured. The death benefit or maturity that you receive from the term plan is considered tax-free. If the premium is more than 20% of the sum assured, the entire benefit amount will be taxed. However, if the insured passes away within the policy tenure, then the death benefit will not be taxed, even if the premium paid is over 20% of the sum assured.
- For the policies that were issued after April 1, 2012, the premium paid up to 10% of the sum assured is not taxed.
Under Section 80D of the Income Tax Act, 1961, tax benefits can be availed on premiums that were paid for health insurance plans. Those who bought riders/add-ons like surgical care riders, critical illness riders, hospital care riders, etc., along with their term insurance policy can enjoy the benefit of tax deductions. However, the below-mentioned conditions have to be met:
- The limit on the deduction must not exceed INR 25,000
- If the age of your parent is below 60 years and you took the policy on their name, an extra INR 25,000 deduction is allowed
- If the parent is more than 60 years old and the policy is taken under their name, the tax benefit of an additional INR 50,000 is allowed.
If you have further confusion, you can visit IIFL’s website. You will be able to come across several term insurance plans and choose one accordingly.