Life does not come with a guarantee. The unwanted mishaps and being diagnosed with threatening lifestyle-related ailments indicate that life is unpredictable. Therefore, it is better to be safe than sorry. It will help if you plan your family’s financial future systematically. One of the most effective ways to do this is by investing in a life insurance policy.
In case of any unfortunate eventualities, your loved ones will receive the death benefit that can help them sustain their lifestyle. Now that you know the importance of investing in life insurance, picking the right policy is essential, as many options are available in the market.
A term insurance plan is one of the most popular life insurance policies, as it offers a large sum assured at a reasonable premium. It covers the policyholder against the risk of death until the policy tenure. If the policyholder dies during the policy period, the insurer pays their nominees the death benefit (sum assured).
When you know the term insurance meaning, you need to search for a suitable policy and start reaping its advantages. One of the best term insurance benefits is saving significantly on tax. Read on to know more.
Tax exemption under Section 80C
According to Section 80C of the Income Tax Act, 1961, the premium you pay towards your term policy is tax-exempt up to INR 1.5 lakh per year. However, note that your term plan’s compensation should equal or less than 10% of the sum assured to be eligible for this deduction.
Other ways to save tax
You can also reduce your tax liability by:
Opting for a higher sum assured
It is vital to have a sum assured based on your family’s household expenses and financial objectives. The greater the sum assured, the better it is for your loved ones. The sum assured acts as an income replacement tool in your absence. This value is tax-exempt under Section 10 (10D) of the Income Tax Act of 1961. Therefore, selecting an adequate sum assured is advisable, as your family will receive a tax-free death benefit. So, apart from providing much-needed financial security to your dear ones, you are saving considerably on tax.
Buying riders
Online term policy offers riders like critical illness, waiver of premium, accidental death benefit, and accidental disability. Such riders widen the scope of your policy and help you strengthen your base plan. You can even avail of tax deductions under certain health-related riders, such as a critical illness rider or terminal illness rider, according to Section 80D of the Income Tax Act, 1961. You can claim exemptions on the premium paid to these riders under Section 80D.
TROP is similar to a pure-term plan. However, the only difference is that it offers survival benefits. If you have an online term policy with a return of premium feature, you are entitled to receive the premiums paid to date by the insurer if you outlive the plan’s tenure. TROP’s tip is more than a pure term plan offering maturity benefits. Here, you can get a maximum deduction of up to INR 1.5 lakh on the premium paid under Section 80C Income Tax Act, 1961. The survival benefits are tax-free as per Section 10 (10D) of the Act.
Term insurance benefits, such as ensuring your family’s monetary well-being and helping you save immensely on tax, make this policy a worthwhile investment avenue. So, buy a term plan that suits your family’s requirements.
