If you think that the headline has some typo error then no it is not the case. As a part of the insurance industry, we are always extremely cautious with our words. Pun Intended!
Today we are going to uncover a hidden fact and a big helpful tip to save an additional tax with your Term Insurance Plan. While it is a fact that the biggest reason for a majority of young people, who have recently joined the workforce, to buy a term insurance policy is to save tax, but still there is a severe lack of awareness about different parameters to save money from paying taxes.
Indeed, when it comes to Term Insurance, i.e. a pure protection insurance plan, the 80C Act of the Incomes Tax Act, 1961 is the foremost section that allows saving money with an exemption up to INR 1.5 Lakh annually. This tax-saving benefit can be availed on the policies taken for own-self, spouse or dependent kids. Also, the death or maturity benefit received under Term Insurance is exempted from the tax under Section 10 (10D) of the Income Tax Act, 1961 where the beneficiary receives the promised amount.
However, 80D Act can also play a crucial role if used effectively. Several health-related riders come with the term insurance policies such as Critical Illness rider, Surgical care rider, Hospital Care rider and etc that can be clubbed with a term insurance plan with nominal additional charges to make the term insurance plan potent. Interestingly, the policyholder is eligible to claim tax-saving benefits on these riders as well under 80D. This means the term insurance can give you the benefits of both 80D & 80C in one plan.
While there are certain considerations to understand accompanied with these riders. Primarily, there is a limit on the amount i.e. Rs. 25,000. The tax deduction under Section 80D can’t be more than the amount of Rs. 25,000 that a policyholder can enjoy on these riders.
In case, If a policyholder provides cover to his/her parents under a separate but similar policy then also, the policyholder can take the advantage of tax-saving benefits up to Rs. 25,000 and if the parents are over 60, the deduction eligibility is up to Rs 50,000. This means that policyholders can save a significant amount of money on an overall term insurance plan.
For senior citizens’ policies, the deduction limit goes up to Rs. 50,000.
Indeed, the tax-saving stands a strong reason to invest in term insurance, however, it shouldn’t be the only reason the select a particular term insurance company and its plan. The selection of a term insurance company and its plan should be determined based on its features, wide range of benefits of the plan, claim settlement ratio of the company, inclusions, and exclusions.
(The author is Founder & CEO, PolicyX.com; views expressed are personal)
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