In today’s fast-paced world, the uncertainties of life are increasing, and more and more people are investing in providing financial protection for their family members. Multiple financial tools are available to help you add a layer of security for a better future.
One popular financial tool is a term insurance plan. It is a life insurance policy that is easy to understand, affordable, and offers death benefits to the policyholder’s family.
You can purchase it online after comparing different plans using a term insurance premium calculator to know which suits your requirements best. However, many people are still unaware of the different tax implications of a term plan.
To help you make an informed decision regarding a term plan, we will discuss the term insurance tax benefits in this blog.
What is a Term Plan?
A term plan is a life insurance plan that offers death benefits to the insured’s family members in case the policyholder dies unexpectedly. It is a pure protection life plan, and the benefits are only valid after the insured’s demise.
A basic term plan does not have any investment or savings aspect with it. However, some term plans offer a Return of Premium additional feature guarantee policyholder receives the sum of paid premiums of the policy if he survives the policy tenure.
In addition, you can also avail multiple rider benefits to increase the overall value of your term plan. The additional rider benefit will be an added cost, but as a cumulative cost for the policyholder, it will still be affordable compared to the benefits received.
There is no age limit to avail of the benefit of a term plan, and starting as early as possible will further decrease the premium amount as age and health are two primary factors that impact the premium. You can also change the beneficiaries if necessary.
List of Tax Implications for Term Plan
1. Under Section 10 (10D)
The payout received by the policyholder’s family members or beneficiaries is exempted from any tax as per the Income Tax Act. One might also receive tax exemption on maturity benefits payout if applicable as per plan and ongoing state rules.
2. Under Section 80C
Any resident or non-resident of India can benefit from tax exemption of premium payout towards a term plan of up to ₹1.5 lakhs annually. This exemption is only applicable if the premium payout is up to 10% of the sum assured amount of the term plan. For handicapped or patients with critical illnesses, 15% of the total sum assured is exempted up to ₹1.5 lakhs annually.
3. Under Section 80D
Like in Section 10 (10D), claim amounts are exempted from tax; under Section 80D, tax benefits are applicable for health-related insurance policies. For instance, if you choose an add-on rider benefit like critical illness, up to ₹25,000 might be applicable for a tax deduction if the policyholder is below 60. This limit can increase to a maximum of ₹50,000 if the policyholder is 60+.
Conclusion
Investing in a term plan is a good decision for a better financial future. The term plan has you covered, especially to provide your family with financial protection in case of your absence.
However, knowing all the tax implications applicable to term insurance payouts is also necessary to always be informed. There are amendments in this tax implications occasionally, so ensure you stay updated and make the right decision.
