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Every earning member of the household with financial dependents must have a term insurance policy. If you rely financially on your spouse, children, or elderly parents, you must have appropriate insurance coverage to protect your family in the event of an emergency. Though the major reason for purchasing a term insurance policy is for financial security, it also provides term insurance tax benefits. Let’s take a closer look at how to save money on income taxes by using these online tax calculators for term insurance plans. The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. These are also subject to change with any changes in laws.
Term insurance policies are simple insurance policies that only offer life cover. If you outlive the policy period, you will receive no compensation. Term insurance premiums are never invested. It’s essentially an annual expenditure you incur to ensure your family’s financial future when you are not present. Tax planning using a term insurance calculator should be a component of every financial choice, whether it’s insurance or investment. Part of the money you spend on life insurance can help you save on taxes.
Life insurance policies are among the most successful tax-saving strategies on the market. Let’s look at how term insurance plans can help you save money on taxes. Term insurance programmes provide a slew of tax advantages.
Premium Paid: Tax Exemption U/S 80C up to INR 1.5 lakhs p.a.
Every year, you can claim tax breaks on the premiums you pay for term insurance. Premiums paid on life insurance contracts up to INR 1,50,000 are deductible under Section 80C of the Income Tax Act of 1961. The deduction is available for policies purchased in your own name, the name of your spouse, or the names of your children (deduction is allowed for all children irrespective of the fact whether they are minor or major, dependent or independent and married or unmarried). There are specific clauses that apply to deductions.
If you purchased your term insurance policy on or before March 31, 2012, your tax deduction eligibility is restricted to 20% of the total assured.
If you purchase a term insurance policy on or after April 1, 2012, your tax deduction eligibility is limited to 10% of the total assured.
The 10% specified above will be enhanced to 15% in the case of disabilities as defined in Section 80U or suffering from any of the conditions listed in Section 80DDB of the Income Tax Act of 1961.
PS: For term plans, the sum assured is always greater than ten times the premium.
Maturity Advantage: Tax Exemption U/S 10(10)D
Under section 10(10)D of the Income Tax Act 1961, the maturity benefit of any life insurance policy is tax-free in the hands of the policyholder if the premium is at least 10% of the sum assured for plans issued before April 1, 2012, and at least 20% of the total assured after that date. Most term plans, however, do not provide a maturity benefit. As a result, it only applies to the few term plans that have a maturity benefit.
For instance, Term Plan with Premium Refund. The total premiums paid during the policy tenure are refunded to the policyholder as Maturity Benefit upon policy maturity in this form of a Term Plan. In this situation, the maturity benefit would be tax-free under Section 10(10)D if the sum insured was greater than ten times the premium paid, as is generally the case with Term Plans. See more using a term insurance calculator.
Beneficiaries receive a death benefit that is tax-free.
The death benefit, which is a large lump sum amount paid out under term insurance (i.e. the sum assured chosen by you), is completely tax-free in the hands of beneficiaries. The amount received by the recipients as a death benefit is not limited.
Health Rider: Tax Break U/S 80D
If you have a critical illness rider, an additional accidental death rider, or any other health rider under your term insurance policy, you can claim tax deductions under Section 80D on the additional premium you pay for the rider. Section 80D of the Income Tax Act of 1961 provides for tax breaks on health insurance premiums. However, the highest tax deduction is INR. 25000 per year.
Though knowing how to save taxes is an important consideration in any investment, it is not the only one. Purchasing term insurance is an important financial choice with term insurance tax benefits. As a result, it is critical to examine several other crucial components, such as researching a suitable plan, selecting the appropriate coverage and term, and so on. The major goal of purchasing a term insurance policy is to ensure the financial stability of the family in the future. The ability to save money on taxes is an extra benefit of purchasing a term insurance policy.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
Source: https://www.turtlemint.com/life-insurance/articles/complete-guide-on-how-term-insurance-policy-can-help-you-save-tax/
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