Tax benefits enable many people to consider investing their hard-earned into something in comparison to if there were none at all. Hence, getting perks on buying life insurance under certain tax provisions not only reduce taxable income but also provides security. If you are considering getting a term plan, here are the tax benefits that you can avail as well.
What Is Term Insurance Plan?
A term policy is an insurance plan which provides you with a life cover and secures your loved ones if something happened to you. The life cover safeguards you for the entire policy term in return for paying the set premium. As these policies are pure cover, you do not receive any maturity benefit after the term ends. You can choose the sum assured or death benefit by calculating the requirements and financial obligations of your family.
Benefits of Getting a Term Plan
Here are some of the benefits of buying a term insurance plan that you should know about:
- Your family can avail a high sum assured to secure their financial needs
- When compared to other insurance policies, you can get affordable premium quotes for a life cover
- You can add rider benefits to your plan to maximise your coverage and safeguard you during unforeseen situations like accidents, major illnesses, etc.
- You are enabled to reduce your taxable income by claiming the premiums paid towards term insurance under Section 80C
Tax Benefits of Term Insurance
A life insurance plan gives you various tax benefits under the Income Tax Act, 1961 making it easier for you to insure yourself.
Tax Deductions under Section 80C
Under Section 80C of the Income Tax Act, 1961, you can claim the premiums paid towards securing a term insurance plan. The maximum amount that you can claim is capped at INR 1,50,000 per financial year.
- If you have bought the policy after or on 31 March 2012, the premiums cannot be more than 20% of the sum assured to be eligible for deductions under this tax provision
- If you have bought the policy before or on 1 April 2012, the premiums cannot be more than 10% of the sum assured to be eligible for deduction
- If the policyholder suffers a disability listed under Section 80DDB or under Section 80U, the claim limit is increased from 10% to 15% for plans issued on or after 1st April 2012
Tax Deductions under Section 10(10D)
The death benefit received by the beneficiary is deemed as tax-free. But the sum assured can be taxed, in case of the below-given factors:
- If the death benefit is received under the Keyman Insurance Policy
- If the death benefit is received under Section 80DD (3)
- If premium did not satisfy the 20% of the sum assured limit for policies bought before 1 April 2003 and after or on 31 March 2012
- If the premium did not satisfy the 10% of the sum assured limit for policies bought on or after 1 April 2012