Several provisions of the Income Tax Act offer a range of exemptions and deductions. The good news is that these can be used to reduce your tax liability. Taxpayers who wish to be eligible for these deductions might also consider investing in a variety of financial assets, such as term insurance.
Not only are term insurances a tax-saving tool, but purchasing them offers a number of additional perks that can appeal to the eyes of an individual looking for coverage. That said, let’s take a closer look at the basics along with the major tax benefits of term insurance.
What is Term Insurance?
Term insurance is the most basic kind of life insurance. It offers life insurance coverage to an individual for a predetermined amount of time in exchange for a regular payment of a predetermined premium. Simply put, the nominee will receive a death benefit as specified in the policy inclusion, provided that the insured passes away during the policy period.
The best part of a term insurance policy is that it is quite affordable. By adding riders or add-ons, you can get even more benefits as an insured. Additionally, you should be aware that pure-term insurance offers no survival benefit and has no cash value. Yet again, by purchasing an ideal plan, you may receive a lot more advantages, one being the tax-saving feature associated with term insurance. Needless to say, to make an informed decision, make sure you check the term insurance age limit as well!
How Does Term Insurance Help You Save Money?
Term insurance will not only provide a financial shield for your loved ones but will offer you peace of mind as well. Listed below are the main ways that tax incentives on term insurance can help you save money in 2024. Take a look:
- Section 80C
The Income Tax Act of 1961’s Section 80C deduction is the biggest term insurance tax benefit. Under this, you are eligible to receive a deduction of up to ₹1.5 lakh from the premiums you pay for your term insurance policy. In addition, additional investments such as ULIP, PPF, ELSS, EPF, health insurance and home loan repayment are also eligible for this deduction.
It is, however, important to remember that in order to receive the full tax benefit for plans issued before March 31, 2012, the premium cannot be greater than 20% of the SI (sum insured). On the contrary, the premium for plans issued after April 1, 2012, cannot be more than 10% of the SI.
- Section 80D
Under this section, individuals or Hindu Undivided Families (HUF) are entitled to save on the premiums they pay for health insurance policies from their taxable income. However, when you opt for a critical illness rider along with your term plan, Section 80D offers tax advantages.
Tax Benefits on Term Insurance Riders
Insurance firms generally provide a number of term insurance riders to provide additional coverage. Their advantages go beyond solidifying a term insurance policy’s essential components.
You may be eligible for additional term insurance tax benefits based on the rider you choose with a term plan. Deductions are also available to policyholders who have added a health-related rider (critical illness) to their term insurance policy. Under Section 80D, one of the most important term insurance tax benefits is:
- Every financial year, individuals are eligible for deductions of up to ₹25,000.
- You can claim an extra deduction of ₹25,000 in case you have taken out insurance for your parents. However, this deduction amount can exceed up to ₹50,000 in case you have elderly (senior citizens) parents. If both you and your parents are over 60 years old, then the benefits can go up to ₹1 lakh.
- Section 10 (10D)
This is one of the biggest benefits of term insurance. Under Section 10 (10D), this benefit implies that your family (nominee) will be receiving the guaranteed SI, which will be tax-free in case of your demise. In other words, this is a tax-free death benefit.
Wrap Up
Summing up, term insurance is a unique opportunity to save taxes and protect your family’s financial future. Choosing a term insurance plan that has sufficient coverage and suitable riders is essential if you want to take full advantage of these tax benefits. To claim full deductions, make sure the premium requirements outlined in Sections 80C and 80D are fulfilled appropriately. Additionally, if you are unsure or need personalised advice on maximising your tax savings, consult a tax advisor.