You are in your growing thirties, enjoying yourself with your family and having a balanced life. But, one fine day, you find that you have blood cancer. How hard would it hit you thinking about leaving your family without any financial support?
It is where term insurance comes into play. When your relatives and other nears and dears fold their hands, the insurance company becomes the monetary lantern that mends and supports your family in multiple ways.
This blog will talk about,
- What is a term insurance plan?
- What are the benefits of having term insurance?
- How is term insurance tax beneficial?
How can Life Insurance help you save taxes?
For instance, you are going to play cricket with your friends. Would you carry your bat and related items, or would you simply go empty handed? The choice is yours, and your choice will have related repercussions too.
Similarly, it would be best to start thinking about ways to save for yourself, your family, and the other future possibilities when you start earning. Life insurance is one such effective tool that would help you weave a financially secure life during dire times.
Some believe that life insurance is only restricted to death benefits, but little do they know that life insurance paves a beneficial path to save taxes. It is where we owe to the Income Tax Act, 1961, where Sections such as – 80C and 10 (10D) benefit the user in terms of taxes.
What is Term Insurance Plan?
A term insurance plan is one of the insurance policies under the life insurance umbrella. As the name suggests, term insurance is taken for a specific period of years. It is the only insurance in which the sum guaranteed can be increased while the policy premium remains relatively cheap.
If the policyholder dies during the policy term, the nominee named in the policy receives the sum promised as the benefit, as per the terms of the policy. It may lead one to believe that the term plan provides no survival benefit to the policyholder who pays for it throughout.
It may be difficult to accept, but a term plan is a standard life insurance policy that does not provide a significant financial benefit other than tax savings while the insured is alive.
Regarding the insured, it is a financial corpus amassed over many years to help the family and dependents accomplish their long-term goals. However, aside from the afterlife profits, the policy allows the policyholder to preserve income tax deductions.
Now, let’s walk through some of the tax benefits in term insurance.
What are the Tax Benefits of Term Insurance Plan?
Invest in a term plan to save some bucks on taxes!
Incredible, don’t you think?
If that is the case, and you have been unable to save taxes due to a lack of financial assistance, the first thing you should do is get a term plan right away.
The primary goal of the policyholder must be to purchase a term plan to avoid taxes. In a larger sense, a term plan—a pure insurance policy—can profit from tax savings for as long as the policyholder is alive.
Would you mind going through the IT Act to understand better the perks one might enjoy post purchasing the proper term insurance plan? If not, then carry on reading.
Tax Savings under Section 80 C
Under this provision, the premium amount you pay under the term plan allows you to claim tax deductions and save money. Here, you are entitled to the benefit of Rs.1.5 lakhs under Section 80 C.
Tax Benefit under Section 10(10D)
Under this Section, if the policyholder dies, the nominee’s benefit amount is exempt from tax deductions under Section 10 (10D). Here, the motto is to offer the nominee the highest possible return while avoiding taxation. However, this maturity amount is tax-free only if the premium amount is less than 10% of the total guaranteed.
If the insurance premium paid is 20% of the actual sum guaranteed, the maturity amount under term insurance coverage is taxable under Section 10 (10D).
- Other peripheral tax benefits related to the term Life Insurance premium paid for spouse or children are tax-deductible.
- The tax benefit ceiling for term plans issued after April 1, 2012, can be set at 10% of the total guaranteed.
- If the individual has a handicap listed u/s section 80 U or any other sickness listed under section 80 DDB, the tax benefit maximum is 15% of the entire sum guaranteed.
- If the insured surrenders the term insurance voluntarily within two years of its inception, no tax advantage is provided under section 80C (5).
The tax advantage under Section 80C is based on the total premium paid in a given year. As a result, if you stop paying the payment for your term plan, the coverage will end. In such a circumstance, the nominee receives nothing, and no tax deductions are available.
But, that doesn’t mean that term insurance is restricted to only tax-related benefits. Other factors add value to term insurance by making it one of the most purchased and liked life insurance types, and they are as follows:
The biggest boon of owning a life insurance policy is that it protects the dependents in the family during unfortunate catastrophes such as death, chronic illness, or disability. It provides financial security during a medical crisis and serves as a safety net in an emergency.
However, while buying in a hurry to save taxes, consumers frequently overlook the bigger picture and fail to consider the real insurance required for their dependents. Under-insurance can be detrimental since it may be insufficient for those left behind following the breadwinner’s death.
Savings for THEM!
Here, they are referred to as family members because it’s our responsibility to nurture and help them grow. Some life insurance policies will invest the premiums in various investment channels to assist you in achieving higher risk-adjusted returns.
Furthermore, it aids in the creation of a well-balanced financial portfolio by addressing obligations such as loans. They can be paid without jeopardizing the family’s riches. It is also useful when preparing for your children’s schooling, marriage, or even retirement.
After you start earning in your twenties, we recommend you to purchase apt term insurance to weave a secure financial net rather than pushing them into economic instability after you are gone. It is recommended that everyone buy term insurance coverage. The premium paid for a term life insurance policy is tax-deductible.
The tax credit assists the buyer in increasing their savings and planning for the family’s dependents.
Always remember – never buy term insurance for the sake of purchasing. You should map out your budget, lifestyle, possible expenditure, future add-ons, and many other details to chalk out the pocket-friendly term insurance policy.