With the right financial planning, you can save a major chunk of your money from the tax axe. Though there are various investment options which offer tax benefits; you can go with insurance policies which not only help save tax, but also give financial security to you and your family. So, let’s understand what those insurance policies which can help you save tax are-
Term Insurance
Known as a pure risk cover, term insurance offers financial security to your family after your demise. Apart from securing the future of your family, a term insurance policy enjoys the following tax benefits=
- Premium gets the tax deduction under Section 80C
- Maximum tax deduction that can be availed is Rs 1.5 lakh ( Total deduction under section 80C)
- Death benefits – The death benefits received by your family is tax-free under Section 10(10D)
Investment Policies
There are various investment-cum-insurance plans like endowment, ULIP, child insurance etc which offer the dual benefits of wealth creation and insurance. These policies get the following tax benefits
- Premium gets the tax deduction under Section 80C
- Maximum tax deduction that can be availed is Rs 1.5 lakh ( Total deduction under section 80C)
- Payout Amount – Both the death benefits and maturity payout exempt under Section 10(10D)
Pension Policies
Thanks to pension plans, it is feasible to enjoy a peaceful and comfortable retired life. There are two phases in the pension plans – accumulation and withdrawal phase. However, tax benefits are available in case of accumulation phase only when you pay the premiums. Here is how you can save tax by buying pension plans-
- Premium gets the tax deduction under Section 80CCC (sub-set of 80C)
- Maximum tax deduction that can be availed is Rs 1.5 lakh
- Maturity Amount – One-third of the accumulated value is paid on the retirement which is tax-free, and the rest 2/3rd is paid as regular pension and treated as income. They are tax-free if received upon the death of the policyholder.
Health Insurance or Mediclaim
In the current scenario, when the medical cost has increased to a new height, buying a comprehensive health insurance is imperative. As the policy covers the medical expenses, it helps you get the best treatment without worrying about the money. In addition to covering health, a health insurance policy also offers the following tax benefits under Section 80D
| Scenario | Self, Spouse, Kids | Parents (whether dependent or not) | Total deduction available under Section 80D |
| All family members are below 60 | Rs 25,000 | Rs 25,000 | Rs 50,000 |
| Except parents, everyone is under 60 | Rs 25,000 | Rs 30,000 | Rs 55,000 |
| All family members are above 60 | Rs 30,000 | Rs 30,000 | Rs 60,000 |
Important points to note=
- Tax benefit is available only to individuals and Hindu undivided families
- Top-up and super top-up health insurance policies get the similar tax benefits
- Payout made under critical illness insurance is tax-free
When will you not get tax benefits on insurance policies?
There are many such instances when you will not get tax benefits on your insurance policies. Let’s discuss those scenarios=
- Missed paying premium= You can’t tax benefits if you do not renew your insurance policy and let it lapse.
- Paying insurance premiums for relationships which are not covered= Though, many health insurance companies allow you to cover in-laws, siblings, grandparents, etc. under your health policy; you will not get tax benefits if you pay premiums for these relations. Tax benefits are available only if you pay premiums in respect of the following relations=
- Self
- Spouse
- Dependent children
- Parents
- Delay in submitting proof to the employer- Only buying the insurance is not enough if you don’t submit it to your employer. It is mandatory to submit tax certificates obtained from insurers to get tax benefits.
- Paying insurance premium for two years= Though, you can pay premiums for two or more years in one go, the Income Tax Act has defined the maximum limit for tax benefit. It means, even if you have paid more than that limit, you will get tax benefits within the maximum limit only.
- Paying insurance premium in cash= Tax benefit is given only in case of premium paid via cheque, credit/debit card, and online demand draft. Cash payment is not eligible for the benefit
In today’s internet driven world, you can buy various insurance policies online as well. For instance, insurers like ICICI Prudential allow you to buy all types of insurance policies in a few mouse clicks.
Though, insurance policies can help you save tax, don’t buy them just for saving tax! Buy insurance policies to secure the future and treat tax benefit as an add-on benefit only.
