What Are the Tax Benefits of a Term Plan?

These days topics like personal finance management and investments are all the rage. And, why wouldn’t they be? In most cases, you get to enjoy the benefits of tax exemptions and have your life insured, or money multiplied. 

After the recent global outbreak of COVID-19, the significance of having a Term Plan came to light. It emphasised the distress the loss of an earning member can cause to the deceased’s family. By choosing to insure your life, you can financially secure the lives of your dependents. 

Here are a few general eligibility checkboxes for a Term Plan. 

1. You must be an Indian citizen to purchase an insurance plan. 
2. NRIs and PIOs can invest in term plans offered by India-based life insurance providers. 
3. There is a mandatory medical check-up to examine your overall health. 
4. Post examination, the premium amount you need to pay will be generated. 
5. Premiums for smokers are higher than for non-smokers. 

You can also apply for a Term Plan if you’re a young professional, a newly married or married couple with children or a senior citizen. 

So, why not explore the option of an insurance plan? Pick from the different types of Term Plans available. 

1. Whole Life Insurance: Your life up to the age of 100 will be insured by paying a high premium for the first 10 to 15 years. 
2. Term Life Insurance: This plan provides your dependents with a large sum assured, at low premium rates. 
3. Endowment Plans: You receive a lump sum amount at maturity, or the nominee/s will receive the sum assured after your death. In case any critical illnesses are diagnosed, you can receive a lump sum payout. 
4. Unit-Linked Insurance Plans: A hybrid plan that combines the benefits of insurance and investment payout. 
5. Child Plans: A hybrid like ULIPs, provides the child with an annual payout after the death of their parents. Additionally, the investment caters for the financial needs of the child.  
6. Pension Plans: Regular investment of a certain amount towards a post-retirement fund, either as a premium or a lump sum amount. 

With so many diverse Term Plans available, you can conquer any fears about surviving past your policy. Choose a plan that provides you with the assurance of insurance with a guaranteed sum assured. 

Term Plan: Tax Benefits

Still not sure about choosing a Term Plan? Maybe these incredible tax-saving benefits will help make up your mind. 

The Income Tax Act, 1961

1. Section 80C

You can avail of the tax benefits favoured by lakhs of taxpayers under Section 80C. This provision reduces taxable income by making tax-saving investments or other eligible expenses. It allows you to claim tax deductions up to Rs. 1,50,000 lakhs p.a. on the premium paid. 

2. Section 80D

This provides income tax deductions for medical insurance premiums paid for yourself or your family, like spouse, children or parents. If you choose critical illness cover, Section 80D allows claim deductions up to Rs. 25,000.

Additionally, Section 80D provides senior citizens with the benefit of claim deductions up to Rs. 50,000.

3. Section 10D

Under this provision, the maturity benefits or sum assured, after death, will be exempt from any tax-based deductions. This means that you and your family will receive the entire matured or sum assured amount without any deductions. 

Term Insurance Riders 

You can choose extra coverage by adding term insurance riders, which can provide you with additional tax-saving benefits. Pick riders like Return of Premium (ROP) that will increase the premium amount to be paid, thus exempting you from taxes under Section 80C. 

Club the benefits of tax exemption and savings by going for an endowment plan or ULIP. Either way, by wisely picking the best insurance plan for yourself, you can ensure your family’s financial security.