Save the future of the loved ones after a demise or reduce the burden of the medical expenses in case of a health emergency are a few highly boosted advantages of different nature of insurance plans.
But an insurance plan also offers one of the highly important yet underrated advantages i.e. Tax Benefits. Shelling out thousands of rupees every year to be paid in the form of taxes becomes even more painful when one realizes that the money could have been invested efficiently to make its potential utilization to make the future financially independent.
Especially the new taxpayers who are looking for intelligent ways of saving tax and at the same time wish to make the right investment choices to have a financially abundant future; buying insurance policies is the right methodology to do so. Moreover, insurance policies not only save your tax but save your money which might get wasted on unforeseen unfortunate incidents.
However, having an insurance plan is not enough. The crux to have the right tax-saving strategy is to be insightful about the right plan, accurate amount, and the time to buy a policy as these three factors determine the amount, one can save from taxes.
Term Life Insurance
Designed to fulfil the financial requirements of your family, Term Life Insurance offers you the tax benefit under the Income Tax Act, 1961's Section 80C for the premium paid towards insuring self, spouse and dependent children are eligible for a tax rebate. In Section 80C, the highest deduction permitted in a year is INR 1,50,000, but as per the change made in the year 2012, the term life insurance premium up to 10 percent of the sum assured are tax-deductible.
The term life insurance includes the pay-out (sum assured) received by the dependents on the death of the life insured completely exempted from the income tax deduction which is an additional benefit for the family of the policyholder as his/her family can utilize the entire amount without paying taxes.
Talking about the right time, then those who prefer paying in monthly mode must opt for the life term insurance policy at the beginning of the financial year.
Health Insurance
Highly advised to insure oneself, spouse, kids and parents to tackle the medical emergencies without adding the financial worry, health insurance are quite an essential commodity to add in the portfolio. Another quite significant contribution can be made by health insurance in saving your tax under Section 80D of the Income Tax Act. This act permits the legitimate deductions of INR 1 Lakh annually wherein the highest deduction made in the favour of health insurance is limited up to INR 25 Thousand annually for the health insurance premium paid for oneself, spouse and children. But in case, a policyholder is paying a premium for parents who fall into the category of senior citizens then there is an extra tax benefit of INR 25,000 annually available for them. And if both parents are above the age of senior citizens then the limit goes up to INR 1 Lakh annually.
It is always considered that health insurance should be availed before the age of 30 years to enjoy the lesser premium and the premium must be paid to get the complete benefit for the taxes.
Which one to choose?
The answer is to select both. Yes, a person eligible to pay taxes must select health and life term insurance to save taxes as by intelligently investing in tax-saving mechanisms under both Section 80C and Section 80D of the Income Tax Act, one can avail the maximum tax rebate on your total taxable income.
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