Term insurance is the cheapest form of life insurance product that is useful for a specific period of time. Term insurance policies are offered by major insurance companies for various periods such as 10 years, 20 years, 30 years and so on.
Moreover, getting death benefits for the insured person, if the person dies within the specified period, is a major advantage of term insurance.
Besides, it acts as a tool to save tax and can add extra savings to your account.Term insurance plans have come up with various aspects of tax deductions underlying in the Income Tax Act, 1961.
The insurance premium paid by the person taking up the plan will be allowed deduction under the provisions of Section 80C of the Act.
It subsequently adds more value to the plan for investors as well as for individual assessee and Hindu Undivided Family (HUF) assessee.
The maximum amount of deduction that an assessee can claim will be limited to Rs 1,50,000 under Sections 80C, 80CCC of the Act.
Section 80C provides benefits to individual assessee himself/herself, spouse, children of such individual and HUF assessee any member of HUF.
Thus, any payment made by a taxpayer or separate tax entity on account of the term insurance policy will be allowed deduction as per Section 80C.
Section 80CCE further states that the maximum amount of deduction that an assessee can claim under Sections 80C and 80CCC will be limited to Rs 1,50,000, which would subsequently help you saving a huge part of your income.
It assures that the person would be able to proceed with claiming tax exemption in respect of maturity proceeds of the term insurance plan at the time of any unforeseen situation such as natural calamity.
Exemptions are there under Section 10(10D) such as if any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, it will be free from income tax.
However, this rule does not apply to various amounts such as sum received under Section 80DD (3), or any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003, and if the premium payable in any of the years during the term of the policy does not exceed 20 per cent of the sum assured.
Under the Finance Act 2012, for insurance policies issued on or after April 1, 2012, the above mentioned limit of 20 per cent has been changed to 10 per cent under Section 10 (10D).
However, people would face no problem in claiming such a tax deduction as the premium is exceptionally low under almost all term insurance policies.
Moreover, death benefit is exempted from tax under Section 10 (10D).After exploring all key elements of term insurance plans, what a taxpayer could conclude is that it’s a great package of profits which not only provides death benefits to the insured person but also serves as a tax-saving tool to leverage its tax benefits.
The author is Principal Officer, Alankit Insurance Brokers Limited. The views expressed in this article are his own.
Curated from Term insurance: A good tax-saving tool