Term insurance is one of the fundamental additions to any investment portfolio. It matters since you can rest assured that the financial future of your loved ones will be secure in the event of your absence. At the same time, term plans are also useful with regard to getting useful tax benefits. Some of them are outlined in this article for your perusal.
Term Insurance Tax Deductions – How You Benefit
Here’s looking at some of the major term insurance tax benefits that you can expect:
Section 80C
The premium that you pay for term plans is tax-deductible under Section 80C up to Rs. 1.5 lakh. This section offers deductions for various listed investments including ELSS, ULIPs, PPF, EPF, home loan repayment, tuition fees of children and so on. However, note that your term plan premium should not be more than 10% of the sum assured If this is the case, then the deduction will proportionately apply.
Note: The deduction applies only when the yearly premium does not exceed 20% of the sum assured in the case of policies issued prior to 31st March 2012. Policyholders will not receive tax benefits on premiums if they voluntarily surrender/terminate policies within two years from their inception, as per Section 80C (5).
Section 80D
Suppose you have an add-on with your term insurance, like critical illness, terminal illness, surgical care, hospital care, or any other rider related to healthcare/treatment. In this case, the premium that you pay for this cover will be tax-deductible under Section 80D up to Rs. 25,000. The section basically offers deductions on health insurance premiums paid for the self, children, spouse, or parents with varying deduction limits, subject to different conditions. The deduction amount goes up to Rs. 50,000 for senior citizens.
Section 10 (10D)
As per the Income Tax Act’s Section 10 (10D), the sum assured that is received upon surrendering a policy/at maturity or even upon the demise of a policyholder will be tax-free. Bonuses that are received with these amounts will be exempted as per this section as well. The deductions are applicable in case the premium is lower than 10% of the sum assured amount or the latter is at least ten times the premium. If the total payout crosses Rs. 100,000 and the PAN of the policyholder is available, then TDS (tax deducted at source) of 1% is applicable.
Term Insurance Plans- A Godsend for Every Family
Term insurance can aptly be called a boon for every household or family. It is especially important if you are the sole or major breadwinner of your family and want to see the other members settled financially, even if you are not around. Term plans are the cushion that they can use in such scenarios to clear debts, meet household costs, achieve goals like higher education, and generally live their lives with dignity.
Hence, securing their futures with term plans will undoubtedly contribute towards higher mental peace and stability on your part. Thus, whenever you start earning, the first thing to add to your portfolio should be a term plan above everything else.