Dispelling the Myth: Is Term Insurance Tax-Free?
Tax planning is a topic that is frequently brought up in the last few months of every financial year. Most people will make wise investments to reduce taxes and increase their savings. They prepare their tax planning strategies that use the deductions allowed by the Income Tax Act of 1961. Many people today choose to buy a term insurance plan to claim deductions under Sections 80C and 80D of the Income Tax Act. A term plan can help you save on taxes.
Term insurance has emerged as a popular type of life insurance in recent times. But there are still many misconceptions about it. To help you decide whether term insurance is the best option, we'll address one of the most widespread myths about it in this article. This pertains to people spreading misinformation about term insurance policies being costly and not tax-free. However, here is information that shows otherwise!
Term Insurance: What Is It?
A term plan provides the insured with life coverage. It does not offer maturity benefits; it is a pure insurance policy that provides a sum assured to the nominees in case of the policyholder's demise. These cost-effective plans give people access to high life insurance coverage at comparatively reasonable costs. The beneficiary will only be paid the assured amount if the insured person dies while the policy is in effect. The goal is to give the policyholder's loved ones financial security during critical times. The recipient may also use this money to settle debts or replace lost income.
Some feel that term insurance is not tax-free and costly for customers. However, nothing could be further from the truth.
Tax Benefits for Term Insurance Under Sections 80C and 10 (10D)
Using your term insurance policy, you can maximize your tax savings allowed by Section 80C of the Income Tax Act of 1961. The premiums you pay to maintain your life insurance coverage in India are deductible up to INR 1,50,000 yearly. Remember that your premium must be less than 10% of the sum assured.
You can additionally benefit from the tax exemptions outlined under Section 10(10D) of the Income Tax Act. In this case, no taxes will be due on the payout from the term plan you or your beneficiaries receive.
Understanding the Income Tax Act's Section 80D
The Income Tax Act's Section 80D addresses health insurance contracts. However, you can still use your term plan to get Section 80D benefits! Most term insurance policies today include extra health insurance riders. Therefore, you can add a critical illness rider to your term insurance policy. You can now claim deductions under Section 80D of the Income Tax Act since serious illness is considered a health condition. Let's examine the types of deductions for term insurance policies permitted under this clause.
Assume you have paid the premiums for three different term insurance policies. You have a plan, your wife has a plan, and your child has a plan. You are all under 60 and have health riders on your insurance policies. You are allowed to deduct INR 25,000 in total for the three premiums. Under Section 80C of the Income Tax Act, you may deduct any or all of the remaining premium.
You can contribute to your parents' term insurance premiums as well. Let's say you have separate policies for each of your parents who are older than 60. Health insurance riders are also included in both term insurance contracts. Section 80D allows you to deduct an additional INR 50,000. You may claim Section 80D benefits of up to INR 75,000 annually.
How Do I Claim Term Insurance Tax Benefits Under Section 80D?
You must exercise caution when claiming a tax deduction for your term insurance policy because Section 80D only applies to health insurance coverage. Check the specifics of your term plan first. Then, check to see if you may add any health riders to your policy. For instance, a critical illness rider entitles you to Section 80D tax advantages. Ask your insurance company what counts as a health rider if you need clarification on the deductions. A reputable financial advisor can also assist you in better comprehending the tax advantages. Finally, ensure you accurately enter all the information when filing your taxes. Making a mistake could result in you losing your term insurance tax benefits.
You will have a chance to create an intelligent tax strategy and receive additional health coverage simultaneously. You can safeguard your family's financial future while saving money today by making wise investment decisions! You can utilize a term insurance calculator to estimate the life insurance coverage you will need based on your income and savings.
Conclusion
There are numerous myths surrounding term insurance, but the most crucial thing to remember is that it is an essential component of any plan for financial security. A little homework will ensure you know all your options and suitable term insurance coverage amount. Don't let misconceptions about term insurance prevent you from obtaining the necessary security for your family. These plans have many tax advantages and can be tax-free if they meet all eligibility criteria, and you can get significant deductions as outlined above.