Life insurance is a protection against any financial loss of an insured person if by any chance a premature death occurs. One of the most important financial decisions in one’s life is to buy a life insurance irrespective of how much they earn. By investing in a life insurance policy you basically secure your family’s financial future. After the insurer dies it is passed upon to the named beneficiary. Life insurance is thus a contract between an individual and life insurance company.
What are the available tax benefits?
There are several benefits of life insurance including the tax benefits. An insurance holder is eligible for tax benefits under the Income Tax Act 1961. There are majorly two tax benefits: Deductions and Exemptions.
There are certain Acts under the Income Tax Act of 1961 which help the insured person to be tax free in several ways. The Acts are 80C, 80CCC, 80CCE, 80D, Section 10(10A), Section 10(10D).
80C: Under the 80C Act, one can claim deduction from the taxable amount on account of the premium paid towards life insurance. A deduction of 10% of the sum is available up to an amount of Rs 1.5 lakh.
10(10D): Under 10D the returns earned from these policies are tax free
80CCC: Under the 80CCC you will get tax benefits on premium paid up to Rs 1, 50,000 for pension and retirement policies. But if one surrenders then the pension will be taxed according to the laws.
Some other benefits that you should be aware of
Section 10(10A): The payment that one receives at the time of retirement, from that total amount 1/3rd of it absolutely tax free. This is known as commutation.
Section 80D: One can get tax benefits on premiums made excepting cash for health insurance policy taken for oneself, spouse or children. The maximum tax benefit on a premium paid up to Rs 25,000 for oneself, spouse or children and Rs 30,000 if the age of the insured is above 60. There is also additional tax benefit of Rs 25,000 on health insurance premium paid for covering and if the age of the insured person is above 60 years then the amount for them is Rs 30,000.
Thus it can be seen that opting for a Life insurance policy has several obvious benefits like not to worry about your family’s future after you but also while you are living it takes care of your financial security. It looks after you every month via pensions, reduces the taxes and also if one falls ill it provides a certain amount of monetary relief by providing certain amount of cash. For senior citizens the amount is always a little extra considering their age factor.
Learn More: Why is it critical to get Life Insurance?