How to Make the Most of Your Term Insurance Plan with its Tax Benefits?

It is essential that individuals establish a budget for their financial future. When it comes to your finances, it is not just your future on the line, it is your family’s as well. Especially if you are the only earning member of the family, any problem with you affects your family’s future. However, many people are not sure how to start or what their options are. Term insurance can help people protect their family’s financial future. 

Term insurance is a type of life insurance that provides coverage for the family members of the deceased in the case of premature death for a pre-defined length of time. It is one of the most affordable policies in India. However, many people tend to see only these two benefits in the policy. Term insurance has so many more advantages that a policyholder can enjoy. The best example of it is the tax benefits it offers in different situations.

Term Insurance Tax Benefits 

Section 80C of the Income Tax Act, 1961 is extremely popular among people who wish to save tax. This section provides tax relief on the premium that’s paid for a term plan. This benefit can be claimed by an individual or a couple of individuals in the case of a joint term policy. The section makes you eligible for a tax deduction of up to 1.5 lakh for a single financial year. 

Here are a few conditions that you need to fulfill to get these benefits: 

• If a person has purchased a term insurance policy before March 31, 2012, then the tax deductions will be limited to the sum of the policy’s total premium. Moreover, the total deduction can only be up to 20% of the sum assured. 
• If you have purchased a term insurance policy on or after April 1, 2012, then the tax will be applicable only on the total premium amount that is below 10% of the sum assured.
• In case of critical illness or disability, the tax deduction will be only applicable if the premium paid is below 15% of the total sum assured. This applies to the policies purchased on or after April 1, 2013. Term insurance plan calculators can be used to calculate the premium to be paid on your policy.
• A tax deduction can also be claimed by a policyholder who belongs to a Hindu Undivided Family. 

Tax deduction on claims for term insurance

Section 10D of the Income Tax Act, 1961 makes you eligible for tax exemption on the benefits that you would receive on a claim. This means that you wouldn’t have to deal with income tax in the case of death benefits or maturity benefits. As per this section, the sum assured that the beneficiary of the policy would receive as the death benefit, maturity benefit, or any accrued bonuses is exempt from being counted as taxable income. 

Here are a few conditions that you need to fulfill to get these benefits: 

No amount should be received that isn’t a death benefit portion of a term insurance policy that was issued on or after April 1, 2013, or before March 31, 2012.

The total premium amount you pay during the policy’s term should not be higher than 20% of the total sum assured.

The total premium amount you pay during the policy’s term should not be higher than 10% of the total sum assured if the policy has been issued on or after the 1st of April, 2012. 

Term insurance is a great way to safeguard your loved one’s financial needs. It provides various tax benefits and is usually one of the most efficient ways to save money. Everyone should be well informed about their tax benefits before they make any type of financial decisions. Having a good understanding of term insurance can help people make the most of their financial well-being.