Term insurance is a very important product that provides life coverage for a certain period of time, thus helping to provide for the financial needs of the family in case of the death of the insured. However, apart from this, term insurance also has vital tax advantages, which may enable you to maximise potential sources of income while planning for your future. In this blog, you will learn how to optimise your term insurance tax benefits and why there is a restriction in the term insurance age limit.
On this page, we provide information about tax benefits for Term Insurance.
Understanding Term Insurance Tax Benefits
The Indian Income Tax Act also recognises term insurance plan investment as a way through which you can provide for your family’s financial needs in the future with an added bonus of tax deductions when filing in the Old Tax Regime. Let’s break down these benefits:
- Section 80C Deduction:
Premiums paid for the term insurance come under the allowance of Section 80C of the Income Tax Act. You can claim up to ₹1.5 lakh per annum, based on which it is deducted directly from your taxable income. This is one of the most vital term insurance tax benefits that every policyholder doesn’t know. - Death Benefit:
The payment received by the nominee as a death benefit, under Section 10(10D) of the Income Tax Act, is exempt from income tax. This way, your family benefits fully from the sum assured, excluding any tax, and is economically compensated for hardship. - Health Riders:
If your term insurance policy has health riders, such as critical illness or accidental death benefits, then the premium paid for these riders is also exempt from tax under section 80D. This makes the term insurance plan even more tax efficient because of its benefits over the other alternatives. - Maturity Benefit:
The maturity benefit of TROP (Term Plans with Return of Premium) Plans have a tax-free maturity benefit under section 10(10D) provided the premiums are less than 10% the coverage and the total annual premium is less than ₹5 lakhs per annum.
Importance of Term Insurance Age Limit
The insurance age limit is one of the parameters to look at when buying an insurance plan. It decides how long the policy can cover you and the premiums to be charged. Here’s why understanding the term insurance age limit is essential:
- Lower Premiums for Younger Individuals: It is a fact that the premium of term insurance is cheaper the earlier you lock it in when you are young. This is because people in the age groups below 45 years can still be considered to be in young adulthood and thus healthier than others. By choosing to lock in a policy at an early age, you can pay less of the premium amount during the entire term of the policy and therefore, it is considered as a wise investment.
- Longer Coverage Period: The term insurance age limit generally goes up to 60-70 years, depending upon the insurance company in question. This indicates that at a young age, buying an insurance policy with longer periods of coverage for your family is possible.
- Flexibility in Financial Planning: It also enables the individual to be in a better position when planning for his or her finances regarding the term insurance age limit. Since you will know the number of years you can sustain the policy, it is easier to coordinate it with your retirement planning, hence having the most vital policy at the time when it will be of most importance.
Ways of Getting Most of Your Term Insurance Tax Benefits
To make the most of your term insurance tax benefits, consider the following strategies:
- Combine with Other Investments: Thus, if you are near the limit defined by Section 80C, then any expenses, including the premiums for term insurance, can be combined with other eligible investments like PPF, ELSS, or the principal amount of a home loan. This will also assist in maximising allowable deductions and diversifying the investment portfolio.
- Choose the Right Sum Assured:
The sum assured should be appropriate, so they should be chosen wisely. This should suffice your family’s needs in case you are out of work, and at the same time, it should not be too expensive to afford the premium charges. This means that when a customer wants a higher sum assured, he will be required to pay a higher premium, but the tax incentives on term insurance will be a worthy investment. - Review and Adjust:
You should review your term insurance policy frequently, especially with changes in financial status like marriage, birth of a child or an income enhancement. You need to make necessary changes to the policy so that it remains beneficial for you and make the best out of tax relief options. - Consider Health Riders: Adding health riders to your term insurance can help you get further tax advantages under section 80D, as mentioned above. This strengthens your coverage while maximising your tax deductions.
Conclusion
It’s not just an insurance policy for your family but acts as a wise tax-saving option for the policyholder. With knowledge of what the term insurance age limit means as well as proper use of the term insurance tax benefits, then it is possible to give your family the security that it needs and, at the same time, ensure that you are taking advantage of every little tax saving avenue that is available to you. The last thing to note on policies is that one should always make sure to reconsider and possibly update his policy about his financial plan from time to time. However, if done effectively, you can leverage your term insurance to the highest level and have your family financially secured.