Life insurance policies aim to secure the financial future of your loved ones in your sudden absence. The policy benefits can help your family to sustain their current lifestyle and meet future financial goals without any liquidity crises.
Contrary to common perception, the premium on life policies is not very high, especially if you buy a term insurance plan. You can do online research to find an affordable life cover that best suits your and your family’s requirements.
Life insurance gives you peace of mind, knowing that your family is economically safeguarded in unforeseen circumstances. Another benefit of life insurance is the tax advantages available under the Income Tax (IT) Act, 1961. These include:
- Deductions under section 80C
An amount of up to INR 1.5 lakh per year paid as a life insurance premium is exempt under section 80C. Here, you can claim a deduction for the premium paid for self, spouse, and dependent children. Here are some points to keep in mind while availing of this benefit:
- If the policy was purchased before March 31, 2012, Section 80C exemption is limited to a maximum of 20% of the total sum assured (SA)
- If your policy was issued on or after April 1, 2012, the tax deduction is restricted to 10% of the SA
- If you buy the policy on or after April 1, 2013, for a disabled individual (as defined in Section 80U) or for someone who suffers from any ailment listed under Section 80DDB, the maximum tax deduction is limited to 15% of the SA
Section 80C benefits are also available for a member of a Hindu Undivided Family (HUF).
- Benefits under section 10(10D)
The policy benefits received by you (on maturity) or paid to your nominees (in your absence) are exempted from tax under section 10(10D). Remember the following before you claim tax benefits under this section:
- For policies issued between April 1, 2003, and March 31, 2012, only policy benefits paid to your nominees in your absence are tax-exempt
- For policies issued on or after April 1, 2012, the benefit is available if the premium does not cross 10% of the total SA
- If a company receives any payout under a keyman insurance plan, this value is not tax-exempt
- If you purchase a life insurance policy for a disabled or handicapped individual, payouts received in his or her absence are not tax-free; the amount is added to your income and taxed at your current slab
Tax exemptions are an additional advantage of life insurance; however, it should not be the only reason to buy a policy. The most important objective is to financially secure your family in your sudden absence. Therefore, it is recommended to use an online life insurance calculator to determine the adequate SA based on their requirements.
Moreover, you can choose different types of policies to maximize your benefits. Some of the available ones are:
- Term plans: Pure life covers that provide no survival benefits
- Unit-linked insurance plans (ULIPs): A small portion of the premium deducted as charges and the balance is invested to provide market-linked returns on investments
- Endowment policies: Offer life cover and additional savings through bonus
- Money-back plans: Provide some returns at periodic intervals
- Whole life policies: Continued coverage for your entire life
- Children plans: To meet life goals like children’s higher education and wedding
You can search for online life insurance quotes on different types of policies. Moreover, understand the policy terms and conditions, inclusions and exclusions, and other features to make your buying decision.
It is advisable that you consult your tax advisor. He or she can give you more guidance about tax deductions on life insurance policies. Moreover, compare different plans offered by various insurers and check life insurance quotes before making a decision.
