Term Insurance Benefits - All You Need To Know

Life is unpredictable.  An untimely death can be a huge setback for those who depend on you financially.  Planning for their safety and security is thus of paramount importance. Term insurance is the key. It is the best way to provide a financial safety net for your loved ones when you are not around.But wait, a term plan does more than alleviate the financial burden of the dependents if you pass away unexpectedly. It can also help save money in the present by reducing your tax liabilities. Here’s a quick lowdown on the potential tax benefits of term insurance during a financial year.

A taxpayer qualifies for tax exemption on the total premium paid towards (up to a maximum of Rs 1.5 lakh) a life insurance policy as per section 80C . These deductions are applicable for policies taken in your name, your spouse or children. It must be noted that the facility applies only to plans that were issued before 31stMarch 2012.For policies allotted on or after 1stApril 2012, the tax benefits can be claimed on 10% of the actual sum assured. However, as per the directives of section 80C(5), if the policy is terminated or annulled within two years of its initiation, the tax benefits that have been availed will be reversed. Also, no tax relief will be provided for Unit Linked Insurance Plans (ULIP) that are abandoned or surrendered within 5 years of commencement.

Given that the cost of medical treatment has escalated dramatically in recent times, the Indian Government has done its bit for people afflicted with disabilities. section 80dd of the Income Tax Act 1961 offers some tax relief to individuals falling under this category. The assessee is eligible to claim tax exemption of up to Rs.75, 000 for premiums paid towards a policy for a disabled dependant.A higher deduction of Rs.1.25 lakh is available for dependents with severe disabilities. Then again, to enjoy the tax benefit, it is mandatory to furnish medical bills and other essential documents certifying the health condition of the dependent.

There is no upper limit to the pay-outs received from insurance life policies under section 10(10D) of Income Tax Act, 196. The tax exemption extends not just to the maturity amount but other bonuses paid to the beneficiary on surrender or death of the insured. The only condition is that the annual premium should be less than or equal to 10% of the sum assured for policy.These benefits also apply to gains arising through ULIP and Single Premium Life Insurance Policies. However, the tax advantage doesn’t cover the Keyman Insurance Policy wherein the premium is paid by the employers and benefits claimed by them too.

As you can see life insurance is not just a protective cover to tackle adverse financial consequences but also a tax saving instrument. Now that you have complete clarity about the different term insurance tax benefits, are you ready to take the plunge?Get in touch with a reputed financial advisor to walk you through the features, payment modes , inclusions/exclusions along with related terms/conditions of various plans to help you make an informed choice.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.