Let’s start with what Term Insurance actually is.
A Term insurance policy is a life insurance policy that offers coverage for a set number of years. A benefit amount is paid if the individual insured dies during the period specified in term insurance while the policy is still valid. Most term insurance plans have fixed premiums for the life of the policy.
One of the most popular insurance products in India is term insurance. It is also known as permanent term insurance or permanent life insurance. It offers protection for a predetermined amount of time that can be as low as 5 years term or up to 100 years of age.
Tax Advantages of Term Insurance Policy in India under Multiple Sections
Choosing a term insurance policy in India provides you with tax benefits under sections 80C and 10(10D) of the Income Tax Act of 1961, subject to the indicated restrictions. Section 80C of the Income Tax Act 1961, allows you to claim an annual deduction of up to INR.1.5 lacs on the premium paid towards term insurance. Additionally, as per Section 10(10D) of the Income Tax Act of 1961, the death benefit received by the nominees is tax-exempted*.
- Section 80C Term Insurance Benefits
A taxpayer is entitled to a tax deduction on the premium paid for a term life insurance policy under section 80C of the Income Tax Act 1961. The annual ceiling for claiming tax deductions remains at INR 1.5 lakh. Term life insurance premiums for your spouse and children are also tax deductible. It only applies to term life insurance contracts issued before 31st March 2012.
Tax deduction benefit is restricted to 10% of the total sum assured for term plans issued after 1st April 2012. However, if a person has a disability listed under section 80U or an illness specified under section 80DDB, the tax-benefit ceiling is increased to 15% of the total sum assured.
- Section 10(10D) Term Insurance Benefits*
Under section 10 (10D) of the Income Tax Act 1961, death benefits paid to the dependent are exempted from tax.
Another thing to keep in mind for term insurance policies is that if the premium exceeds 20% of the amount covered, the maturity amount will be taxable and subject to a 10% tax.
Limitations on Term Insurance Benefits
- If the premium paid during a fiscal year exceeds 20% of the total sum assured, the tax deduction is available for up to 20% of the sum assured.
- You may be entitled to an income tax benefit under the Income Tax Act, 1961 if the premium amount for a policy issued after 1st April 2012 does not exceed 10% of the actual value guaranteed.
4 Reasons Why You Should Have Term Insurance Policy
- Monetary stability
This is the primary justification for choosing any type of insurance. The finances of the surviving family members can be managed efficiently after the demise of the individual insured.
Managing household finances and providing for the family’s basic requirements can become difficult in the absence of the primary breadwinner. A term insurance policy offers the whole sum assured after the individual insured’s demise that can, albeit monetarily, make life easier for the surviving family members.
- Ensure The Future of Your Loved Ones
Every family member who earns a living has some responsibilities and duties towards their spouse, children, and parents, which may not reach fruition due to an untimely death. But you can secure the future of your family with a term life insurance policy. The insurance company’s reimbursement in the event of your demise will guarantee that your children have a solid education and have money for their marriage. With the right term insurance plan, your spouse and parents can lead a comfortable life without experiencing financial troubles.
- Riders
Most term life insurance policies provide the insured with death coverage and a few riders or additional benefits. You can add riders like critical illness coverage, a return of premium, etc., at a nominal additional premium cost. These add-ons ensure you receive the maximum value from your life insurance. The best way to find a suitable term life plan is to read about the different insurance providers and their offerings thoroughly or you can also consult a financial advisor.
- Higher Coverage, Affordable Premiums
Term insurance plans provide high coverage at premiums accessible for most people depending upon the choice of plan. The purchase can either be made offline or you can buy the plan online.
Selecting the Correct Term Insurance Policy is Essential
There are many different term insurance policy options with other benefits on the market. However, it is suggested not to adopt a one-size-fits-all strategy when considering the benefits of term insurance.
Based on your financial obligations, you should take enough life insurance, and depending on the type of coverage you want, you should choose the proper add-ons. Before you purchase a term insurance plan, keep in mind that there are several aspects you should be aware of. You can learn more about them both online and offline.
Conclusion
Term insurance policy is one of the most common and straightforward future-securing investments. An extended range of tax advantages for term insurance provides your family financial stability in times of emergency and helps you save money. It is a low-cost and dependable financial safeguard for your family’s future.
