Term insurance is one of the simplest ways to secure one’s life when they are alive and secure their loved ones when they pass away. As a life security strategy, a term plan gives cover to a person for a specific period in exchange for premium installments. As such, if the insured passes away during the tenure of the term plan, the next in line as a nominee will get an advantage as per the terms & conditions of the plan.
Term protection additionally ensures your friends and family’s money is secured. Without a term plan, the family’s wealth and investment funds can be exhausted to survive. However, the term protection plan is significant if the relatives of the insured person are also financially dependent on them or if their contribution to the family’s income is more than the others. So you really need to understand what is term insurance exactly and how this is important to us.
It is practical and fundamental for individuals from all levels of pay. It likewise gives you the alternative to expand inclusion when you enter another life stage, for instance, marriage or become a parent, without going through any extra clinical check-ups according to the conditions of the term plan.
There is another advantage of the term plan, which can be profited on paying a reasonable additional charge. These are add-on plans or riders that you can settle on if you need additional inclusion for specific diseases, handicap, unplanned demise, or waiver of premium. These advantages guarantee your objectives are met and secured despite facing sudden hurdles in life.
There are many term protection plan tax benefits that you can profit when you purchase a term plan. These advantages assist you with getting a good deal at the time of tax assessment while guaranteeing your loved one’s financial security. Here are three different tax benefits on a term plan:
Tax Benefit Under 80C
Section 80C of the Income Tax Act is the most well-known tool utilized for tax benefits by taxpayers. This section offers an allowance of up to Rs.1.5 Lakh for every one of the recorded investments and instruments set up. It incorporates a few plans like PPF, EPF, ULIP, ELSS, and installments like reimbursement of home loan, child’s educational expenses, life coverage premium, and so on.
Under this Section, the charge paid for a term plan is additionally qualified for allowance up to Rs.1.5 Lakhs (combination of all investments under this Section). The conditions include:
- The yearly charges paid should not exceed 10% of the sum guaranteed. If it does, derivations will be applied proportionately.
- For policies before 31st March 2012, the deduction will be applied if the yearly premium doesn’t exceed 20% of the sum guaranteed.
Tax Benefit Under 80D
Section 80D chiefly permits tax benefits on the expenses paid for health care coverage. It likewise gives term protection tax benefits.
You can profit from term protection tax deduction under 80D if you have opted for riders such as Critical Illness cover, Surgical Care cover, and others. You can only make the most of your term protection premiums by choosing these riders while also getting medical coverage cover.
The conditions include:
- Deductions under Section 80D can be profited for a sum of up to Rs. 25,000.
- In case of protection plans for parents, you can benefit from extra deductions of up to Rs. 25,000.
- If parents are senior citizens, the benefit can be achieved up to Rs. 50,000.
Tax Benefit Under 10D
Along with the term insurance installments, you can also guarantee tax benefits on the profits under section 10 (10D) of the Income Tax Act. Under this section, the death advantage given to the recipients, or the sum received at the time of maturity is completely absolved and there is limit to it either.
The conditions include:
- Term plan tax benefit under Section 10(10D) can be beneficial if the premium is under 10% of the aggregate insured, or the total guaranteed is no less than 10x of the premium.
- If the payout surpasses Rs.1,00,000, and the policyholder’s PAN is in records of the insurer, a TDS (Tax Deducted at Source) of 1% is applied.
How to claim the benefits?
The ITR-1 contains a definite segment where deductions under different sections of the Income Tax Act can be recorded. These allowances are asserted in Part C of the third tab of ‘Calculation of Income and Tax’. Assuming you are documenting ITR-1 online, a portion of these subtleties get auto-calculated from those in Form 24Q, which is filled by your employer. Never look for investment options from the perspective of saving taxes as taxes can complicate your investments as well as savings plans. Any policy you undertake must solve both of your purposes, of protection and investment that keeps you from the danger of weak returns on your investments.
Things to Remember
In the bid to save more expense, one should not fail to remember the basic role of a term plan is assurance and everything other than it ought to be considered as an additional benefit. Along these lines, one ought to go for the right cover and this can be accomplished through a term protection plan.
Bottom Line
While a term plan offers tax exclusions, it is recommended that you counsel a financial consultant. This will empower you to make an educated choice because the advantages might change as per the assessment bracket.
Along with the tax benefits of term protection, you must select a reasonable term plan based on its reasonability, popularity, coverage, term, riders, and installment modes to finalize any one of them.