Do You Know The Tax Benefits On Your Life Insurance Policy?

By Medha Roy Chowdhury | March 14, 2019

Wondering how your Life Insurance policy can help you save tax? We’re here to tell you everything you need to know about it.

Life Insurance is one of the most sought-after tax-saving vehicles, especially by seasoned investors with sound financial health and fiscal discipline. Confused about why it is so? Keep calm and read on.

  • What is Life Insurance?

Setting a Life Insurance cover in place is perhaps one of the best financial decisions you’ll ever make. Life Insurance is a contract or agreement wherein an insurance company, also called the insurer, offers an individual, also called the insured, with financial coverage and security in exchange for a monetary payment over a period of time.

The payment that the insured pays to the insurer is called the premium. In the event of the untimely death of the policyholder during the policy tenure, the insurance company offers a lump sum amount to the beneficiary or nominee of the insured. This lump sum amount is called the sum assured.

Additional Reading: Grow up! Life Insurance is Not Just for the Old Folks

  • What are the benefits of Life Insurance?

Ensuring that you’re financially stable in life is of crucial importance. Purchasing a Life Insurance policy offers a horde of benefits and features. Having an insurance policy in place is a way to ensure the financial freedom of your family even after unfortunate circumstances such as your untimely death. This is the basic and most primary objective of a Life Insurance policy.

Besides providing adequate financial coverage to family of the policyholder in case of his/her sudden demise, Life Insurance policy ensures that you are financially capable of handling the rising expenses of healthcare.

In addition to the risk cover, Life Insurance promotes long-term savings for the policy holder. It is one of the most effective instruments when it comes to retirement planning. Life Insurance policies provide a steady source of income to the insured after retirement.

Did you know that you can even avail a loan against your Insurance Policy? This way, you can meet unplanned financial requirements at every stage of your life without disrupting the benefits of your policy.

Depending on the terms of the policy, situations such as temporary or permanent physical disability resulting in job loss, terminal illness, or critical illness can also be covered.

  • What are the tax benefits under Life Insurance coverage?

If you already have a Life Insurance policy in place, you can enjoy attractive tax benefits and save a considerable sum of money. Confused? We’ll tell you how.

You can avail tax benefits on the premiums paid for your Life Insurance policy. The Section 80C of the Income Tax Act, 1961, allows tax exemption up to Rs. 1,50,000 per year.

That’s not all. Tax deductions are allowed on the payouts of a Life Insurance policy under Section 10(10D) of the Income Tax Act, 1961. The sum of money that is received as a death benefit to the beneficiary or the amount that that policyholder receives on maturity of the policy upon survival is tax exempted under Section 10 (10D).

  • Tax deductions under Section 80C 

  1. Individuals and Hindu Undivided Families (HUFs) can enjoy tax-saving benefits under Section 80C.
  1. For Life Insurance policies issued before 31st March 2012, deductions are allowed if the total premium paid in a financial year is 20% of the sum assured amount.
  1. If the policy was issued after 1st April 2012, the tax deductions are applicable only if the premium paid in a financial year is 10% of the sum assured.

Additional Reading: All You Need To Know About TDS On Life Insurance Policies

  • Tax deduction under Section 10 (10D)

There is no cap on the maximum deduction under this section. Any amount received under a Life Insurance policy qualifies for deduction under this category. Under this section, the tax benefit is offered on maturity proceeds if the premium paid is not more than 10% of the sum assured.

The amount you receive can be a sum allocated as a bonus, a survival benefit, maturity benefit, surrender value, or a death benefit.

Proceeds and gains from a Unit Linked Insurance Plans (ULIP) also qualify for this deduction.

Additional Reading: A Millennial’s Guide To Tax-Saving Investments

Points to note: Tax benefits you’ve claimed will be reversed if your Life Insurance policy is terminated or annulled by you within 2 years of the commencement of the policy. This is applicable to all Life Insurance policies apart from ULIPs.

Tax deductions you’ve claimed under ULIPs will be reversed the policy has been terminated or annulled within 5 years of its commencement.

Additional Reading: Income Tax Investment Proofs – A Quick Checklist

  • How to purchase a Life Insurance policy online in order to save taxes?

If you don’t yet have a Life Insurance policy in place but wish to get one, here are two ways in which you can get yours.

The not-so-easy way

This is the conventional way of getting a Life Insurance policy. This involves listing down all the Life Insurance companies along with the different plans they offer. Once you’re finally done, compare the plans individually and then purchase the preferred plan.

Also, you could get in touch with an agent and choose a plan as per his recommendation but that might not always be a good idea because no one will have a better idea of your needs but you!

The super easy way 

All you need to do is click here. After this, you’ll have to check your eligibility by submitting your basic details. We need this to fetch quotes from top insurers that are best suited to your exclusive needs.

Once you’ve received options of various Life Insurance plans that are perfect for you, you can compare the policy details, inclusions, and exclusions, etc.

Once you’ve taken your pick, all you need is to purchase your cover and sort your financial protection right away.

The force of technology will be on your side, we promise!

Additional Reading: Missed The Deadline For Tax-saving Proofs Submission? Here’s What You Can Do

Hold on! You must know this. If you’re looking for a range of financial products with top-notch service, easy-peasy application process, and instant paperless approval, be sure to check us out. We have everything finance-related under one roof.

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Category: Life Insurance Tax benefits Tax savers
Medha Roy Chowdhury

About Medha Roy Chowdhury

Square peg in a round hole, Medha reads whenever she gets the chance to. She is happiest when travelling and dreads having to choose between the hills and the sea. Dog lover at heart, she is in pursuit of adopting a few canine friends someday. Weird as it may be, she bakes when stressed. Previously a Market Research Editor by profession, she takes a keen interest in finance. When she is not reading, you’re sure to find her with her ukulele.

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