Term Insurance Benefits: Term Plan Tax Benefits
Table of Contents
A term insurance policy is purchased to provide your family with a financial safeguard in the face of an unfortunate event. Moreover, incentives such as debt/loan repayment, retirement planning, and tax benefits attract individuals to purchase a suitable policy. The following articles focus on one aspect of the multiple benefits and elaborate on tax benefits offered on term life insurance policies.
What is a Term Insurance Policy?
The term insurance policy contract is made for a fixed duration ranging from 5 years to around 65 years. Under the plan, death benefits are offered to the beneficiary if the life assured dies within the policy tenure. Moreover, the life assured has to make regular premium payments to avoid policy termination. However, the policy does not offer maturity benefits to the policyholder, making it cheaper than other plan options. Furthermore, life assured can get additional riders to customize the policy plan.
Term Plan Tax Benefits
Tax benefits which can be availed through a term insurance policy are given below.
1. Tax Benefits Under Section 80C
Under Section 80C of the Income Tax Act, the life assured can enjoy tax benefits on the payable premium amount of a term insurance policy for himself/herself, respective spouse or children. You can even save up to Rs. 1.5 Lakhs in a year. Earlier, i.e., before 31st March 2012, the premium rate was restricted to be kept below 20% of the sum assured of the term insurance policy to get tax benefits. However, the percentage of premium rate was decreased to 10% of the sum assured after 1st April 2012. Moreover, the percentage of premium rate should be less than 15% of the sum assured of a disabled person’s term insurance policy, under Section 80(U), and the policy of an individual who is suffering from an illness, under Section 80DDB.
2. Tax Benefits Under Section 10(10D)
Under Section 10(10D) of the Income Tax Act, maturity benefits or death benefits provided to the life assured or the beneficiary, respectively, are exempt from taxes with no upper limit under some specific terms and conditions. The payable premium amount should be less than 20% of the sum assured for the amount to have a tax exemption. However, as the sum assured of a term insurance policy is generally higher than the annual premium, situations like these hardly happen.
Conclusion
It must be noted that a term insurance policy should not be used as a tax-saving tool. Instead, it is essential to prioritize an appropriate life cover and sum assured amount that will help your family in a financial crisis after your demise. Hence, these tax benefits should be enjoyed as additional benefits offered with a term insurance policy. Moreover, you can even consult a financial advisor or an insurance agent to help evaluate specific tax benefits available according to your tax brackets and term insurance policy plan.
Also read - Top 5 Benefits of Buying Term Insurance Plans?
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
