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Finance

How Term Insurance Can Help You In Reducing Your Tax Liabilities

Introduction

Manoj worked with a bank in Delhi. His per annum salary was Rs.12 lakhs. Manoj had a family to take care of and he was the only earning member to support the means. He knew that he had to save money as well as plan for the future at the same time, beginning as early as possible. Worried about the future expenses, Manoj thought of buying tax saving  insurance policies that could help him save tax as well as create wealth. Cost of living in Delhi was already high which forced Manoj to plan his monthly expenses. Thinking on the lines, he zeroed on to buy a term insurance cover because it was affordable. 

If you are also looking for ways on how to reduce tax and want to invest your money discreetly, you must explore term insurance. Let us look into the subject in detail.

Table of Content

  • What is Term Insurance?
  • Impressive Features of Term Insurance.
  • How Term Insurance Can Help You in Reducing Your Tax Liabilities?
  • What will happen if you do not buy a Term Insurance Plan?
  • Conclusion

What is Term Insurance?

Term insurance is a life protection cover that is applicable for a period of time referred to as term. The type of insurance pays when the policy holder dies within the policy term, provided premiums are paid.

It is the purest insurance cover that provides financial protection when the life insured passes away. Term insurance is the life cover available at the most affordable rates. For example, you can get a term plan for Rs.1 crore at an inexpensive premium rate of Rs.490/- per month. 

Let us further look at the features of the term plan that assures you for a secured purchase.

You can learn more about Term Insurance at Aditya Birla Sun Life Insurance. 

Impressive Features of Term Insurance.

Exploring the features of term insurance is important as that can assure you of making a good purchase.

  • Low-Cost Premium: Term insurance is the life policy that is available at a low-cost premium for high cover.
  • Policy Term: Term insurance is available for a period of years. If anything unfortunate happens to the life insured during this time, the nominee gets the lump sum assured as the protection. There are different options of term insurance available, you can choose any depending on your requirement.
  • Flexibility in Premium Payments: Do not hassle if every month payment concerns you. Understanding your financial bearance, you can plan to pay the premium amount annually, semi-annually, quarterly, and monthly. If you are a business owner looking to create financial protection for your family, you can also choose to pay in lump-sum. 
  • Additional Rider Covers: Insurance companies want you to feel liberated after buying a term insurance plan. This is why they offer you rider covers that are available at a nominal cost. Some of the riders that you can opt with a term plan includes:
  1. Critical Illness Rider.
  2. Accidental Death Rider.
  3. Waiver of Premium Benefit in case of a permanent disability.
  • Tax Benefits: Term insurance policies offer tax benefits. The amount of premium paid is eligible for deductions up to Rs.1.5 lakhs under Section 80 C of the Income Tax Act, 1961.  Apart from this, the payouts are also exempted from tax deductions under Section 10(10D).

Let us explore further how term insurance helps you in reducing your tax liabilities.

How Term Insurance Can Help You in Reducing Your Tax Liabilities?

By now you have gained an idea on how term insurance can save you from tax liabilities. The Indian government and Income Tax Department have laid out provisions helping people to plan their tax saving strategy. Let us understand in detail the tax deductions that can reduce your tax liabilities.

Section 80C:In India, term insurance provides deductions under Section 80C  of Income Tax Act, 1961.  Under this section, the total premium paid (as high as Rs.1.5 lakhs) can be deducted from your overall income in a financial year. When you reduce the premiums paid, the overall taxable income liability reduces. 

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Section 10(10D): The death benefit or the amount of sum assured given to the nominee of the life insured is completely exempted from tax. The purpose of the term insurance is to make the nominee protected and financially confident. This is why the amount earned as a benefit under term insurance is free from tax.

Tax savings is a part of buying a life insurance policy. Buying the policy should have a higher relevance as if you do not have a term insurance policy, it can be a disaster.

What will happen if you do not buy a Term Insurance Plan?

If you do not eat on time, your health may deteriorate.

If you do not eat healthy, you possibly get a bad stomach.

If you do not wear a helmet, you probably can get hurt in an accident.

Just as the way, these things are obvious, not buying a term insurance plan can be equally damaging. 

Buying a life insurance policy is to save your family at the time of unexpected and unfortunate events when you are not there to take care.

Who doesn’t want to arrange securities, both financially and physically, for the family? Everyone does. 

There are different ways of developing securities, one of which could be buying term insurance. If you do not buy a term plan, this will happen:

  1. Your family may not have sufficient finances to take care of their expenses: No insurance, no guarantee, and no security. In the absence of the life insured and no term insurance plan, the family will have no finances to take care of their expenses. When alive, you must have taken an education loan, home loan, etc. After death, the family will have to face the brunt of financial burden.

With a term insurance the nominee of the life insured will get benefit in case of demise within the policy period. The amount can help the family and the dependents to pay off the loan liabilities in absence of the life insured.

  1. Your Assets will be at stake: When you do not buy financial security with tem plan, your family will be forced to put other assets on sale. When you are not there, the circumstances might force the family to put other assets on sale. In the end, the family will be left with not many options to make a living. This is something which you will not wish for your loved one’s. The scenario creates relevance and purpose of buying a term insurance without which the family’s financial status will shake leaving them in bad shape.

Conclusion:

Planning for tax saving insurance through a term plan is a part of your life protection journey. Reduction in tax liabilities is one part of buying a term insurance plan. It has its relevance attached to creating financial security for the family. Other than the basic plan, you must enhance the cover with the riders like accidental death benefit, critical illness rider, surgical care rider, accidental death and disability rider, hospital care rider, and waiver of premium rider. Additional covers means more protection which is worth making for it but you will have to pay a nominal cost for it. Buy term insurance today to protect the family in the time of stress. 

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