Being financially secure is a primary goal in most of our lives. Be it further education, international holidays or a wedding, financial planning will help us achieve all these things without much worry. If you want to grow your money, you should choose investment options with the least risk and high returns. One such investment tool is Term insurance.
Term insurance plans promise financial security to the insurer, even in tragic incidents like the demise of a family member or spouse. If you want life cover for your loved ones, term life insurance may be the best option. Also, the premium you pay on term life insurance is exempt under the IT act of 1961. It is one of the other reasons why people choose to get term insurance at the end of a financial year.
What is Term insurance?
Term insurance is a type of life insurance policy. It is basically a protective policy that offers financial security to the insurer in case of major life-altering events such as the demise of the bread earner or a spouse. In such cases, the insurance companies pay the insured sum to the beneficiary. It is the best tool to protect you and your loved ones in their time of need. Life can be uncertain at times. A good term insurance plan will help secure your family’s financial future.
Why should you opt for a Term insurance plan?
Term insurance has multiple benefits. Some of them are-
1) Affordable premiums-
Most term insurances provide life cover at a very reasonable premium. It is also quite advantageous when you start early. The earlier you buy a term insurance plan, the lower will be your premium amount. There are also many options to pay. You can either opt for monthly/quarterly/yearly premiums.
2) Attractive add-ons-
With term insurance, you can add coverage for critical illness, disability etc. It means you will receive a payout if you or other family members are diagnosed with a critical illness or a disability. However, the illness should be covered under the policy.
3) Pay out of the sum insured-
Term insurance plans let you decide the type of payouts your family receives after any unfortunate incident. You can choose a full payout at the time of death, a small payout every month or a combination of the two. It will ensure that your family should not have to worry about basic expenses after you.
4) Term insurance Tax benefits-
Under section 80C of the IT act 1961, the premiums you pay on term insurance and its payout are completely exempt from tax. It is the reason why you can choose to get term insurance to save on tax.
Let us discuss this in detail below-
Term Insurance tax benefits-
According to Section 80C and 10(10D) of the IT act of 1961, if you are a taxpayer, your term insurance premium and payouts are exempt from tax. You can claim them in the IT returns you file at the end of every financial year.
Here are some of the benefits that you can claim-
1) Term insurance tax benefit under 80C-
The Income tax act of 1961 states that a taxpayer is eligible for a tax exemption on the premium amount he pays for any term insurance policy. It also includes term insurance taken for spouses and children. The maximum exemption you can avail in a year is capped at 1.5 lakh.
However, this exemption holds true for term policies that were issued before 31st March 2012. Term insurance after 1st April 2012 gets a tax deduction benefit limited to 10% on the sum insured. In the case of disability, this limit is increased to 15%.
According to 80 C (5), if the insured person voluntarily decides to forfeit the term insurance without 2 years, there will be no tax benefits.
2) Term insurance tax benefits under section 10(10 D)-
According to this section, any payout or returns that the insured or their family members receive is completely exempt from tax, and there is no upper limit for the same.
Another thing to note is that the maturity amount is taxable at 10% if the premium exceeds 20% of the sum insured.
3) Term insurance Tax benefits under section 80 (D)–
This section usually deals with health insurance policies. However, most term insurances come with an additional health cover today. Therefore, you can claim deductions on your term insurance in case of a medical emergency in your family if your term insurance has health coverage.
Conclusion
There are many advantages of term insurance. You can consult your financial advisor regarding the procedure to receive term insurance tax benefits. It is essential to file your taxes correctly to receive these exemptions and benefits. Always make an informed choice and choose a plan that suits your long-term financial goals and fits your tax bracket.
