Does life insurance give you any tax benefits?
Whether it's a life insurance investment or any other, the first thing that may come to your mind is what are the tax implications of the investment? Are there any tax benefits? If you don't know the answers to these questions, don't worry. We'll answer them. But first, let's understand what life insurance is.
Life insurance is a contract in which an individual pays a certain amount to the insurance company every year or so, and in return, the insurance company assures financial benefit for your beneficiaries on the policyholder's demise or insurance maturity. Due to growing requirements for financial safety, life insurance has now become an essential part of personal finance planning for many people. In fact, in 2022, according to IRDAI, India was the tenth largest insurance market in the world, with 1.9% of global insurance premiums. By 2032, it will be number six among all markets and will experience rapid growth in the future as well.
The growing need for life insurance for kids, individuals and families, calls for the need to a better understanding of the tax benefits of insurance policies. So, let's dive in.
What Does Life Insurance Offer?
To begin with, let's explore the different types of life insurance plans available in India and what they offer.
• Term Insurance Plans: A policy of this type covers the insured for a certain period or period. If the policyholder dies during the term, beneficiaries receive the death benefit. Such a plan offers a higher coverage amount at a lower premium rate.
• Unit Linked Insurance Plans (ULIPs): ULIPs are combined financial products with a combination of investment and insurance. Part of the premium paid goes into financial markets, while the other remainder is used to provide life cover. You are free to choose the investment option according to your own financial goals.
• Whole Life Insurance Plans: As the name implies, these plans offer guaranteed coverage to the insured for the entirety of their life. Such plans carry a larger premium. However, whenever the policyholder dies, the beneficiaries get a death benefit.
• Money Back Insurance Plans: Policyholders receive periodic payouts from these plans during the term of their policy so that they can realise their financial goals. In case of the policyholder's demise during the policy term, their beneficiaries receive the death benefit.
• Child Life Insurance Plans: This life insurance for kids is designed to secure a child's future financially. In case of the parent's demise, the child receives the death benefit, and the policy continues without any premium payment, ensuring that the child's future financial needs are met.
Are There Any Tax Benefits on Life Insurances?
One of the significant benefits of life insurance is the tax benefits it offers. Under Section 80C and Section 10D of the Income Tax Act, there are income tax benefits on life insurance. We'll take a closer look at what these benefits are under each section.
Tax Benefits Under Section 80C on Life Insurance
Section 80C of the Income Tax Act allows for a deduction of up to Rs. 1.5 lakh from your taxable income for the premium paid towards life insurance policies. This deduction is available for both individuals and Hindu Undivided Families (HUFs).
Tax Benefits Under Section 10D on Life Insurance
Section 10D of the Income Tax Act provides that the sum assured received on the death of the policyholder is tax-free. Additionally, any amount received on maturity of the policy, including bonuses, is also tax-free, provided the premium paid during the policy term does not exceed 10% of the sum assured.
Conclusion
In conclusion, life insurance is an essential part of financial planning, providing financial security to your loved ones in your absence. With the different types of life insurance plans available, you have the flexibility to choose one that suits your financial goals. Additionally, the tax benefits under Section 80C and Section 10D make it a more attractive investment option. So, go ahead and secure your future with a life insurance policy today.
FAQs
1. What is Section 80C of the Income Tax Act?
Section 80C of the Income Tax Act allows for a tax deduction of up to ₹1.5 lakh on life insurance premium payments made by the policyholder.
2. Can I claim tax benefits on my whole life insurance policy?
Yes, you can claim tax benefits on your whole life insurance policy under Section 80C and Section 10(10D) of the Income Tax Act.
3. How much tax deduction can I claim under Section 80C for life insurance premiums?
You can claim a tax deduction of up to ₹1.5 lakh on your life insurance premium payments under Section 80C of the Income Tax Act.
4. Are the maturity benefits of my life insurance policy taxable?
No, the maturity benefits of your life insurance policy are tax-exempt under Section 10(10D) of the Income Tax Act, provided the premium paid is less than 10% of the sum assured.
