The Buyt Desk
One of the important pieces of financial planning is tax saving. Plan your annual finances in a manner that you pay applicable tax optimally and save as much as you can. The saved money can help you to build a corpus for the future. You should plan your savings and investments for the year well in advance so that you can manage taxes smartly. Insurance could be one way of saving taxes and at the same time give you protection. But your primary aim of buying insurance should never be saving taxes. But there are provisions that will allow you to take a tax deduction on your insurance payment and you must utilise it for your benefit. Buy insurance of various kinds to have a strong insurance portfolio that will safeguard your future and be helpful in the present as it gives tax benefits.
Which are insurances that will help take advantage of tax benefits?
There are various insurances available in the market to cover various products and scenarios. Here are the top 3 insurances that will provide maximum income tax benefits as premiums paid to these policies are tax-free to an extent.
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Unit Linked Insurance Plan (ULIP)
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Health Insurance
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Term Life Insurance
How will investing in this insurance help you in saving your tax?
Unit linked insurance plan
Unit-linked insurance plan has the best of both worlds that is insurance and market-linked investments. A part of investors’ money will be invested in a term insurance premium and the other part in equity or the debt market. From an income tax point of view, it is a single premium paid towards insurance and this can be claimed for tax deductions while filing income tax. ULIP guarantees maximum returns, so parents should invest in child plans to create a good corpus to secure the child’s future. Under Section 80C and 10 (10D) of income tax, investment in ULIP up to Rs.150,000/- is tax-free. After a locking period of 5 years, the maturity amount is also tax-free.
Health insurance
In the current world, everyone should have health insurance as medical facilities have become very costly. By paying the bills of medical care providers and reimbursing your medical bills, health insurance covers medical expenses of illness, injury and surgery. Few insurances also cover the expenses of daycare procedures, hospitalization, ambulance charges, medical care at home (domiciliary hospitalization) and a few other such health care expenses. Along with these, a health insurance policy also serves as a tax-saving tool. The premium paid for self, spouse, dependent children and dependent parents is tax-free based on a few criteria.
Section 80 D of Income Tax Act 1961 gives you a tax deduction for the payment of health insurance premiums. If you buy your senior citizen’s parents health insurance, you get these two deductions:
1. Up to Rs.25,000/- for the policy that covers you, your spouse and dependent children
2. Up to Rs.25,000/- for the policy that covers your parents
When both you and your parents are senior citizens and you buy two policies, you get these two deductions:
1. Up to Rs.30,000/- for the policy that covers you, your spouse and dependent children
2. Up to Rs.30,000/- for the policy that covers your parents
Term life insurance
One of the most important insurance covers is life insurance. You invest here to ensure the safe future of your family after your demise. A term insurance plan is life insurance that provides coverage over a desired time period. The premiums for term plans are way cheaper than traditional life insurance. Apart from this, term life insurance should also be considered for lowering your tax burden. Irrespective of whom you avail a term plan your premium expenses are eligible for tax benefits.
Tax-Saving Benefits of Term Insurance
Section 80C: Under Section 80C of income tax, in a financial year, the (monthly /quarterly/annual / one time) premium payment of life insurance up to Rs. 150,000/- is tax-free. When invested in term insurance, the overall taxable income is reduced after subtracting the premium amount.
Section 10 (10D): If you die during the term, the death benefit is delivered to your assigned nominee. Under Section 10 (10D) of income tax, the entire amount of death benefit is exempted from tax. If you are alive till the term ends, the maturity amount received is also tax-free.
Conclusion
With these deductions in place, policyholders with term insurance, ULIP and health insurance can easily reduce their tax liabilities. Taxpayers, especially those who fall in higher slabs of income tax can save their money by using these tax deductions.
