While term insurance can provide financial protection to the policyholder’s family, it can also help in providing tax benefits. There are various tax benefits that the insured person and his/her beneficiaries can avail.
In this article, we will explain the tax benefits of term life plans.
A term plan can offer financial assistance to the insured person’s family in case he/she passes away during the tenure of the policy. Therefore, term insurance can help in reducing the financial burden. Furthermore, it can help in meeting the regular expenses of a family.
Here are some of the benefits of term insurance-
It Can Provide Sum Assured
The sum assured is the amount that the insurer can provide to the policyholder’s family in case he/she passes away during the tenure of the policy. Thus, the sum assured can help the beneficiaries pay for future and regular expenses.
It Can Provide Return of Premium
While term plans provide the death benefit, they don’t offer any maturity benefit. But a person can avail maturity benefit if he/she opts for the return of premium option. This option returns the premiums paid to the policyholder.
It Can Provide Add-Ons
In case a policyholder wants to enhance his/her cover, he/she can opt for add-ons. Add-ons are additional benefits that an insured person can purchase by paying higher premiums.
Apart from such benefits, a term life plan can also provide tax benefits. Here are some of them-
Tax Benefit Under Section 80C
Under Section 80C, the premium paid for purchasing a policy can be claimed as tax deduction up to Rs. 1.5 Lakh. However, there are some prerequisites to avail this benefit, such as-
The annual premiums paid must not be more than 10% of the sum assured. In case the premiums exceed 10%, then the deductions will be applied in proportions.
If the policyholder surrenders or terminates the plan two years from its beginning, then he/she will not receive the tax benefits on premium payments.
Tax Benefit Under Section 10(10D)
Under Section 10(10D), the sum assured that a person receives on surrender or maturity of the plan or in case of the death benefit is fully tax-free. Furthermore, bonuses received with such amount are exempt.
Here are some of the prerequisites for availing tax exemption-
Tax benefit under this section can be availed if the premium is below 10% of the sum assured or the sum assured is at least 10 times the premium.
In case the payout is more than Rs. 1,00,000 and the insured person’s PAN is available to the insurer, then 1% TDS is applied.
Why is it Important to Buy Term Insurance?
Term insurance can protect the policyholder’s family from a huge financial burden. The sum assured provided by a term plan can be used for various expenses. But before purchasing a policy, a person should understand his/her family’s financial needs. Furthermore, it provides tax benefits. Therefore, it is important that every person considers purchasing term insurance to provide financial protection for their family.