Term Insurance policy offers life insurance coverage to the policyholders. You can customise the validity period of your policy at the time of purchase. In the unfortunate event of your demise, the insurance company will give the insured sum to your family.
The benefits of term insurance do not end just with life insurance, it goes beyond that. You can also get several tax benefits under Section 80C and Section 80D of the Income Tax Act.
In this post, we will discuss the various tax benefits you can avail of under these two sections.
What is Term Insurance?
Term Insurance is a type of life insurance that covers your life for a specific period that you choose. You can choose a tenure of 10 years to 50 years.
However, you should keep in mind that this type of insurance does not create any cash value. It only provides financial protection to your family in case of your untimely demise.
It is noteworthy that term insurance is more affordable than a general life insurance policy.
Section 80C: Tax Benefits on Premium Paid for Term Insurance
Section 80C tax savings allow you to claim up to ₹1.5 Lakh per financial year. This reduces your total taxable income. You can claim this tax deduction on premiums paid for your term insurance policies.
This benefit is applicable if you are an individual or belong to the category of Hindu Undivided Families (HUFs). Another requirement is that you should have purchased term insurance for yourself, your family or children.
To qualify for deductions, the premium of your policy must not exceed 10% of the sum assured for policies issued after April 1, 2012. If your policy is older, i.e., purchased before March 31, 2012, the limit is 20% of the assured sum. However, if your policy premium exceeds this percentage, the deductions are granted proportionately.
For example, if you pay ₹40,000 annually as a premium for a term insurance plan and fall under the 20% bracket, you can save ₹8000.
Section 80D: Tax Benefits for Premium Paid on Term Insurance for Self, Spouse, Children, and Parents
You can also get tax deductions on your health insurance premium under Section 80D of the Income Tax Act. This is an indirect tax benefit that you can get if you have a health-related rider in your term insurance. These riders include critical illness cover, surgical care cover and similar.
You can avail of tax benefits under Section 80D if you choose critical illness coverage with the term insurance plans from Axis Max Life Insurance.
You can claim up to ₹25,000 annually for premiums paid for yourself, your spouse and dependent children if they are under 60 years of age. If your parents are above 60 years of age, you can claim a deduction of ₹50,000.
For example, if you pay ₹20,000 for yourself, ₹10,000 for your spouse and children, and ₹40,000 for senior citizen parents, the total deduction is ₹70,000.
How Tax Benefits in Term Insurance Can Help You Save Money
Tax benefits under sections like 80C and 80D are a great way to save money while also looking out for your financial future. It means that you have to pay less tax overall as it reduces your taxable income.
Take Section 80C, for example. You can claim up to ₹1.5 lakh a year by investing in life insurance. It is a great deal because it allows you to build your savings and also reduces your tax burden at the same time.
Section 80D of the Income Tax Act can help you with health insurance premiums. You can claim deductions under this section for your own policy, your family’s, or even your parents’ policy. You can get a higher deduction amount if your parents are senior citizens.
By utilising these tax benefits, you can keep more of your hard-earned money while also preparing for the future.
Additional Considerations and Tips
There are a few things you should keep in mind when choosing a Term Insurance plan. These considerations can help you make the most of your savings and plan your future.
Start Early
The earlier you begin investing in tax-saving instruments, the more your money can grow over time. The power of compounding works best when you have more time on your side, so don’t wait until the last minute.
Avoid the Year-End Rush
Many people scramble to make investments just before the financial year ends, but planning ahead can help you spread out your investments and avoid the stress of rushing. It also gives you more time to make thoughtful decisions.
Keep Track of the Limits
Remember, Section 80C allows you to claim up to ₹1.5 lakh, and Section 80D offers deductions for the health insurance rider. Be sure to keep track of these limits so you don’t miss out on any potential savings.
Review Your Insurance Regularly
Under Section 80D, the more coverage you have, the more tax benefits you get. So, as your family grows or your parents become senior citizens, make sure your term insurance is up to date.
Conclusion
Term Insurance isn’t just about securing your life, it’s also a smart way to save on taxes. By utilising the benefits under Sections 80C and 80D, you can reduce your tax burden while protecting your future.
Just remember to plan ahead, stay informed, and spread out your investments to make the most of these deductions for long-term financial security.
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