Your Tax Planning isn’t Complete Without Term Life Insurance

Tax Planning

When deciding if life insurance is a good investment, it’s vital to comprehend the various types of policies offered. There are several types of life insurance plans, but the most prevalent are term and permanent.

Term life insurance is designed to protect you for a certain period of time. You could get a 20-year or 30-year term life insurance policy. These policies operate identically to other kinds of insurance plans you may have, such as automobile insurance; you pay a monthly premium, and if anything tragic occurs, such as your premature death, a reward is handed out. 

As long as you make your payments, you are covered for the rest of your life. Certain types of permanent life insurance may also contain an investment component that allows policyholders to accumulate financial value. When financial advisors and life insurance policy brokers push promoting life insurance as an investment, they are referring to the cash value element of permanent term insurance and the different ways this cash might be invested.

Buying a term plan for tax saving? 

Many taxpayers believe that purchasing a life insurance payout is one of the simplest methods to save tax. That makes it an even more enticing proposition for last-minute tax savers who would like to complete the tax-saving procedure before the March 31 deadline. Yet, purchasing term life insurance as a fast reasonable choice to save taxes may wind up negating the exact objective of this activity, which is to give financial security to your family. 

How can Term Insurance save tax?

Saving money is a crucial part of everyday life. So each individual seeks strategies to lower tax responsibility, especially when it comes to saving taxes. Term insurance could also provide tax advantages. Together with insurance coverage, you can profit from term insurance tax breaks. There are some features of term insurance that have advantages in income tax that you must be familiar with.

Term insurance, the most basic form of life insurance policy, offers a person with life insurance coverage for a set length of time in exchange for the regular payment of a set premium. If the policyholder dies during the policy term, the policy beneficiary will get a death benefit as stipulated in the policy coverage conditions. 

A term insurance policy is quite reasonable, and you may get even more benefits by adding add-ons/riders to it. You must also be aware that pure term insurance has no monetary value and hence provides no survival benefit. Yet, by enrolling in a good plan, you may obtain several other benefits, such as term life insurance tax advantages.

Tax Benefits of Term Insurance Plan

If you buy a term plan, you might benefit from not one, but several term insurance tax reductions. These benefits allow you to save money on taxes while simultaneously protecting the financial future of your loved ones.

Section 80C

Section 80C of the Income Tax Act of 1961 governs the most basic term insurance tax advantages that every Indian taxpayer can obtain. Indeed, many individuals consider this section to be the most prominent tax-saving strategy. Term insurance tax advantages of up to Rs. 1.5 Lakh are available under this section for insurance premiums for purchasing the policies. The highest limit of tax deductions possible under this section also includes tax advantages on investments in Public Provident Fund (PPF), tax-saving Fixed Deposits, and a variety of other tax-saving products.

Section 80D

Section 80D primarily enables tax deductions for health insurance premiums. It does, however, give term life insurance tax advantages, although in an indirect way.

If you have chosen health-related riders such as Disability Insurance cover, Surgery Treatment cover, and related covers, you can take advantage of the term insurance tax benefit under 80D. On the other hand , if you choose these riders together with health insurance coverage, you may optimise your tax savings with your term insurance payments. You may take advantage of term insurance tax benefits under 80D if you choose Critical Illness Cover with term insurance policies. 

Section 10(10D)

The provisions of section 10(10D) exempt any cash received under life insurance. This total also includes the cash allocated as a bonus on such policy. By summarising the provisions of section 10(10D), the following can be concluded: 

1. Exemption under section 10(10D) is applicable on any amount received under a life insurance policy. This sum comprises death benefits, maturity benefits, and bonus earned.

2. The exemption applies to all types of life insurance policy claims.

3. Section 10 exempts the total sum received from a life insurance policy (10D). This means that there is no cap on the amount of money that may be claimed under the life insurance policy.

4. There are some extraordinary circumstances in which the exception under section 10 is not available (10D)

Tax Benefits on Term Insurance Riders

Insurance companies use a variety of term insurance riders to give further coverage. Their advantages, however, do not stop at enhancing a term insurance policy’s main characteristics.

Additional term insurance tax advantages may be available depending on the rider you purchase with a term plan and related conditions. Here are a few ways that term plan riders can help you get more term life insurance tax breaks:

1. When you add a Critical Illness rider to your term insurance plan, you are entitled for Section 80D tax deductions.

2. Riders like Return of Premium, when added to a term plan, boost the premium, enabling you to save even more cash under Section 80C. You may use an online calculator to see how the premium varies when more riders are added.