Should Tax Benefits be a Reason to Buy Life Insurance
5 min read | 3 months ago
Should Tax Benefits be a Reason to Buy Life Insurance
Have you ever thought of buying life insurance protection for yourself and your family? Life insurance offers your loved ones financial security in the event of unforeseen events. With life insurance, you can even give a family that may not have anyone else to support them a hope for the future. But were you aware that people often buy life insurance just for its tax benefits alone? In this blog, we will discuss whether you should buy a life insurance plan just for the tax benefits or if there are other factors to consider.
What is a Life Insurance?
Before we begin discussing tax advantages, let's first stop and understand life insurance - what it is all about and why you should care. It's a commitment which you make with the insurance company, as you have to pay premiums in return for financial protection to loved ones upon your death. There are many kinds of life insurance in India like term insurance, whole life insurance and unit-linked insurance policies (ULIPs).You can buy it from life insurance companies, and other financial institutions like small finance banks as well.
A life insurance's main objective is to provide financial protection so that if you pass away, your family will not be left without a means of support. With a life insurance plan you can guarantee that your family will be financially stable, long term able to pay off their debts, support their education and keep up with the lifestyle they have become used to living for decades.
So, now coming back to the question, should you buy life insurance for tax benefits? We’ll answer this question.
Should You Buy a Life Insurance Just for Tax Benefits?
In India, life insurance serves as a kind of tax-saving tool. According to the Income Tax Act, 1961, under Section 80C all life insurance policies are liable to tax exemption. There is a maximum deductible limit of Rs 1.5 lakh for this exemption. Furthermore, tax exemption is given for premiums paid on insurance policies taken out for self, spouse, or dependent children and parents.
There are good reasons to consider buying life insurance like tax benefits, but that doesn't mean you should ignore its primary function of maintaining the financial security your family should have if anything happens to you. Additionally, if you buy life insurance without learning if the sum insured is right, this can leave you under-insured. Even worse, if an emergency happens unexpectedly, it will leave your family not only facing economic difficulties but also big financial troubles.
That's just another way in which buying life insurance has failed to provide any real protection for them. On the other hand, you might also end up paying a little higher than required premium. Thus, before buying life insurance that offers tax-saving benefits, why not make sure to examine the contract carefully and weigh all factors involved?
What Other Factors to Consider When Buying Life Insurance
When buying life insurance, there are several other factors to consider apart from tax
benefits.
Policy Riders- If you're buying life insurance for kids, consider adding riders to the policy. Riders are additional benefits that can be added to the basic policy to provide extra coverage. Some common riders that can be added to a life insurance policy include accidental death benefit riders, waiver of premium riders, and critical illness riders.
Coverage - When buying life insurance for kids, it is essential to ensure that there is adequate coverage. The sum assured should be enough to take care of all their financial needs, such as education, marriage, and other expenses.
Select a Reliable Insurer - Selecting a well-established insurance company with a strong record of settling insurance claims is crucial when you are buying a child life insurance. You want to ensure that your family can make a claim on the policy in case of an unforeseen event.
Conclusion
In conclusion, while tax benefits are certainly an attractive feature of life insurance
plans, they should not be the sole reason for buying a policy. Life insurance is primarily
about providing financial protection to your loved ones in case of your untimely demise.
Therefore, it is essential to evaluate all aspects of a life insurance policy, including
coverage, riders, and the financial stability of the insurer, before making a purchase. So,
don't just buy a life insurance policy for the tax benefits - carefully consider your needs
and invest in a policy that provides adequate financial protection to your loved ones.
FAQs
1. What are the tax benefits of buying life insurance?
Life insurance premiums are eligible for tax exemption under Section 80C of the Income Tax Act, up to ₹1.5 Lakh. The sum assured and other benefits are also tax-exempt under Section 10(10D).
2. Is tax savings the only reason to buy life insurance?
No, the primary objective of life insurance is to provide financial protection to dependents in case of the policyholder's untimely demise. Tax-saving benefits should not overshadow the importance of adequate coverage.
3. How can I ensure that I am not underinsured when buying life insurance?
Evaluate your financial circumstances and objectives and choose a policy with adequate coverage. It is also important to regularly review and update your policy to ensure that it meets your changing needs.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
