Taking an insurance policy is the most sensible option to pursue in today’s uncertain times. There is simply no way of knowing what kind of curveball life can throw your way. Try as we might, we cannot always protect ourselves and our loved ones from future mishaps.
Hence, we must take the next logical step in protecting ourselves and our families: by taking insurance plans.
Interestingly, while life insurance plans protect the interests of our loved ones after we are absent in their lives (via such policies as term plans, for example), there are ways to ensure that the plan repays our foresight by paying back the premiums and a maturity bonus as well (such as in endowment life plans). Another interesting offshoot to consider is the insurance tax benefit.
However, many people make the mistake of viewing insurance plans only through the prism of investment and tax benefits. This can be counter-productive – one may end up taking a life policy that has an insufficient sum assured to save paying on expensive premiums. On the other hand, one may take an expensive policy with a high premium to avoid paying tax at the end of the year. Both these approaches can ensure that one ends up with an unsuitable insurance product on their hands.
After due diligence of which life insurance products are suitable for one, it is time to buy the policy that can provide a mix of high coverage, adequate future protection, and tax deductions. The right policies can get the policy buyer some significant insurance tax benefits every year. Here’s how it works out:
Life insurance policies
Though insurance is not a traditional investment option like property, gold, or non-agricultural land, it still offers excellent tax benefits. While it offers security and peace of mind to the life insured and also their loved ones, the life insurance tax benefit extends to the policyholder every financial year.
These policies may be endowment plans, Unit LinkedIn Plans (ULIPs), term plans, etc. The Income Tax Act, 1961, currently allows up to Rs 1,50,000 tax deduction against the premiums paid for life insurance. Also, the maturity benefit/death dues in the policy are completely tax-free.
People take pension plans to safeguard against future financial uncertainty after they retire. Not many people are aware that pension plans also perform the dual important function of offering insurance and tax benefits. These tax-saving plans give tax rebates every year even while the policyholder survives the plan. The premiums paid towards pension plans are tax-exempt under Sec 80CCC of the Income Tax Act, 1961, up to Rs 1.5 lakh per year. Besides this benefit, pension plans offer retirement benefits to provide financial help to retired persons.
New Pension Scheme (NPS)
These are also pension plans, but they importantly differ from the traditional variant: corporate bonds, equity securities, government securities, and corporate bonds. Thus, they are market-linked funds that professional fund managers handle as per the investor’s financial goals. The premiums paid for the NPS are tax-deductible under Sec 80D of the Income Tax Act, 1961.