Have You Considered Term Insurance a Part of Your Tax Planning?

• 20th Dec 2017
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Term policies are pure life covers that act as an excellent way to protect the financial stability of your loved ones. Having term insurance is not just beneficial to secure the financial stability of your loved ones in your absence. Term insurance also offers tax benefits and is a good tax planning tool.

These types of life insurance plans provide the benefits to your nominees in case of your demise during the policy tenure. However, term policies have no survival benefit, unlike regular life plans.

The Income Tax Act, 1961 offers policyholder tax benefits under section 80C along with the deductions of INR 1.5 lakh. Furthermore, you may avail of exemptions under  section 10(10D) of the Income Tax Act, 1961 for any maturity benefits received under the term policy.

Term Insurance Tax benefits

Individuals and Hindu Undivided Family (HUF) taxpayers may claim the following benefits under section 80C.

• Individual taxpayers may claim the benefits for self, spouse, and dependent children
  
• For HUF taxpayers, any member who is part of the family is eligible to avail of the tax benefits under this section
  

Limitations

• The tax benefit is available for an amount up to 20% of the sum assured in case the amount of premium during a financial year exceeds 20% of the sum assured.
  
• For any policy issued after 1st April 2012, you may claim income tax deduction  under the IT Act if the premium amount is not exceeding 10% of the actual sum assured.
  
• If you suffer from any specific ailment or severe disability, you may claim benefits if your premium amount is less than 10% of the actual sum assured in case the policy is issued after 1st April 2012.
  
• Tax deductions are limited to a maximum of INR 1.5 lakh per annum under section 80C and 80CCC of the Income Tax Act, 1961.
  

Term Insurance Tax Benefits 80D

You may also avail of tax benefits under section 10(10D) of the Income Tax Act, 1961. Any amount you receive from your insurance policy including bonus is exempt from taxes. However, there are certain exceptions to this rule as listed below.

• If any amount is received under section 80DD(3) of the Income Tax Act, 1961
  
• If you receive any benefit under an insurance policy that was purchased after 1st April 2003, except death benefits.
  
• Any amount received under Keyman Insurance Plan is not eligible for tax benefits
  

Tax exemptions on death benefits

In case you pass away during the policy term, your nominees will receive the benefits as per the terms and conditions. The death benefits paid through term insurance plans are not taxable in the hands of your nominees. However, if the policy was purchased after 1st April 2003, you will not be able to claim benefits under section 10(10D) of the Income Tax Act, 1961 in case the premium amount exceeds 20% of the sum assured.

Term plans are an important component of a strong financial plan. It is one of the easiest and most affordable ways to achieve financial stability in case of your demise.

Kotak term insurance plans are available at affordable premiums enabling you to acquire higher coverage for a lower outflow. Most experts will advise you to include a term policy in your overall financial plan. Furthermore, the tax benefits available under the Income Tax Act, 1961 make these policies more desirable. These plans not only offer death benefits to your nominees but also help you reduce your tax liability. If you still haven’t purchased one, avail one today!

Invest in Term Insurance now to Save Tax

Read Here for More Related Articles:

• Income Tax Deductions
• Section 10 (10D)
• 80D Section