You may have come to this blog while looking for ways to reduce your income tax as much as possible. You have come to the right place. Here’s how to reduce income tax with the help of term insurance. Before we get into that, let’s look at term insurance.
What is Term Insurance?
Term insurance is a pure coverage plan that is effective for a set period of time once a predetermined premium is paid. If the insured person dies during the term, the beneficiary gets a death benefit, which can be in the form of a lump payment or installments. This implies that your family may continue to live their normal lives while you are present, and all of their life objectives will be realized.
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Term insurance also protects the fortune of your family members. The family’s wealth and reserves would have been diminished in the absence of a term insurance policy due to the loss of income. Term insurance is essential if you have loved ones who rely on your earnings or your input to the family’s income is considerable. If you survive the term policy, you will not get any maturity benefits, but you will have assured that your loved ones are protected by purchasing a term insurance policy.
Term insurance also has other advantages. It is both affordable and important for people of all economic levels. It also allows you to enhance coverage when you reach a new life stage, such as a wedding or the birth of a child, without having to undergo any further medical check-ups as per the terms of the term plan. Then there’s the added benefit of term insurance riders, which may be obtained for a little fee. These are optional plans or services that you can select if you require additional coverage for certain diseases, impairments, accidental death, or premium waiver. These advantages ensure that your life objectives are reached and preserved, regardless of the twists and turns that may occur along the path.
Tax Benefits on Life Insurance Payout
A life insurance policy has a single most significant function is to pay a death benefit to the policyholder’s beneficiaries. The death benefit is the sum promised under a policy that is paid to the designated dependents in the event of an untimely death within the policy’s term. The death benefit is typically paid out after the claim is filed, assisting them with day-to-day needs.
Aside from giving financial protection to your family members, another significant benefit of a life insurance policy is the deduction of the premiums paid from your overall revenue. But, most consumers are unaware that a term plan provides tax savings on death benefits as well.
Tax benefits under Section 80C and 10(10D)
Purchasing term insurance provides tax advantages under Sections 80 C and 10(10D) of the Income Tax Act of 1961 (the Act), according to the limitations indicated within. Section 80C allows you to claim a deduction of up to Rs 1.5 lakh per year on premiums paid. The death benefit of your term insurance plan is free from income tax under Section 10(10D) if the sum guaranteed is at least ten times the yearly premium paid.
Now that you’ve learned everything there is to know about the Section 80C term insurance tax advantage, let’s check if you may also claim a benefit under any other section of the Act.
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What is Section 80D of the Act?
Section 80D provides tax incentives for premiums paid in health insurance programs. On the other hand, insurers provide term insurance with critical illness riders or other health riders, such as surgical treatment. If your term insurance policy has a health rider and you choose it, the premium for that rider can be deducted under Section 80D. The remaining premium amount would have to be claimed under Section 8C of the Act.
After selecting the assessment year, you can claim these advantages while filing your taxes under the deduction category under Section 80D. Furthermore, while claiming tax deductions for a health rider on your term insurance under Section 80D, keep the following in mind:
- If you have critical disease term insurance for yourself, your wife, and your children and are all under the age of 60, you are eligible for a tax deduction of up to Rs 25,000.
- If you provide coverage for your parents under different but similar insurance and they are over 60, you are eligible for a deduction of up to Rs 50,000.
How to claim term insurance tax benefits under Section 80D
As previously stated, term insurance includes health riders that can be added to your base term plan. The health riders also enable you to claim Section 80D tax advantages for term insurance. For example, you can claim a deduction for the critical illness rider you purchase with your term insurance since Section 80D exempts certain medical expenditures from taxation.
Remember to use the term insurance plan calculator to determine the amount of policy you require. If you use riders, ensure to examine the additional exemption you obtain for certain of them under Section 80D.
Conclusion
There is no doubt that term insurance is a safe protection plan designed to secure the future of your loved ones and to accomplish various family goals. You can claim tax deductions on term insurance premiums, and your nominee/family can claim exemptions on death payouts under Sections 80C and 10(D) of the Act, respectively. Furthermore, Section 80D of the Act allows you to claim tax advantages for certain riders you purchase to cover medical expenditures related to catastrophic diseases or impairments. Obtaining term insurance coverage might be a great present you can offer to your loved ones, so go ahead and do it.