Updated: March 29, 2021 4:06:06 pm
Written by Vaidyanathan Ramani
Insurance products benefit you not in just one-way but many – the most important being financial protection against unexpected emergencies that may force you to break into the savings that you have accumulated over the years.
Along with financial protection, there are some other key advantages of investing in insurance products, one of them being tax saving. Insurance plays an integral role in helping you build your investment portfolio while savings on tax.
There are numerous insurance products available in the market including term life insurance, health insurance, ULIPs and Guaranteed Return Plans by investing in which you can apart from availing protection can save a substantial amount of tax on your annual income. There are also many retirement, savings and investment plans available which could be viable tax-saving options for you. Let us learn about some of the prominent options available.
Section 80C – Term Life Insurance, ULIP, Guaranteed Return Plans
One of the most important insurance products that must be a part of your investment portfolio is Term Life Insurance Plan – a pure protection product. Premiums paid towards your term life insurance plan qualify for tax exemption if they are under a total of Rs. 1.5 lakhs or below. Moreover, under Section 10(10D) of the Income Tax Act, the payout received under a term life insurance policy is also completely exempt from tax.
Under a term life insurance plan, you pay a fixed premium for a defined period – also known as the coverage tenure – against a sum assured. In case of your demise within the policy tenure, your financial dependents receive the entire sum assured as a lump sum. The payout can be used to take care of every-day expenses, one-time expenses like child’s education and marriage and taking care of the retirement needs of the spouse.
Unit Linked Insurance Plan (ULIP) – a hybrid product – is a combination of protection and saving plan as the plan not only offers life insurance to the policyholder but also helps channel savings into market-linked assets. These plans are a perfect choice for meeting long-term financial goals mostly ranging between 15 – 25 years. ULIPs come with a mandatory lock-in period of 5 years and the customers have the option of varying their assets in 5 to 9 fund options with varying asset allocation between equity and debt.
The latest addition to the life insurance products category is Guaranteed Return Products which promise you maximum savings along with a life cover. For long-term investors, these are the best available plans as these products allow you to continue investing according to your needs regardless of the market performance. The plans allow you to lock-in the interest rate for your entire life – catering to the longevity risk. Apart from the savings element, these plans even have an in-built life cover component that is 10 times the annual premium. The premiums paid towards investing in guaranteed return plans qualify for tax rebate along with the maturity amount under Section 10(10D).
Section 80D – Health Insurance
Another important insurance product that must top your investments list is health insurance. Comprehensive health insurance provides adequate financial protection to you and your loved ones in case of any medical emergency. The plan pays for the hospitalisation expenses – both pre and post along with OPD expenses and any other treatment – subject to policy inclusions up to the total sum insured. The premiums that you pay to purchase a health insurance plan for self, spouse, kids and parents qualify for tax exemption under Section 80D of the Income Tax Act. In total, you can avail of a maximum tax rebate of Rs. 1 Lakh – Rs. 50,000 – Self, Spouse and Kids, and Rs. 50,000 – Parents.
Before you make any investment with tax saving in your mind, it is important to take into consideration which income tax regime you have opted for while making tax declarations. As per the income tax guidelines, you may continue with the old/existing tax regime by availing tax exemptions under various products. However, if you have chosen to avail concessional tax regime without claiming any deductions and tax exemptions, you cannot avail tax benefits under sections 80C and 80D of the Income Tax Act.
The author is Head-Product & Innovations at Policybazaar.com. Views expressed are that of the author.
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