Tired of being pestered about tax saving? This financial instrument gives you maximum bang for the buck

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How? Consider this. All investments that are eligible under tax saving sections such as Sec 80C offer tax saving based on the amount invested – subject to the overall cap of Rs 1.5 lakh. Some of them like PPF and tax saving equity mutual funds also carry the advantage of zero tax when the investment is redeemed. With other eligible investments, the income on redemption or even income accruing every year is taxable – this reduces the returns you get. Insurance has a special feature – no tax is payable on the proceeds of an insurance policy. So, you get tax benefits when you pay the premium amount every year and do not have to pay tax when the policy matures. Those are two strong benefits for sure.

But, there is one standout feature of insurance policies which no other product offers – which makes it worth the while to make insurance a priority product when it comes to utilising your tax saving limit. An insurance product gives you a huge umbrella of protection, even with a very low ‘downpayment’. How? Here’s how it stands out. The moment you pay out the first premium, the product gives your family & you a protection of a sum several times the premium amount. So, if you pay Rs 10,000 as premium for the first year, you can be eligible for up to Rs 50 lakh of insurance cover – right from the first month. This is unlike any other product. In every other product, the umbrella available is equal to the amount invested. In PPF, NSC, NPS, equity mutual funds and so on, the cushion is equal to the accumulated amount at a point of time.

“Life insurance is a very important part of one’s financial well-being. Insurance should be given priority over investments for anyone who has dependents. This makes life insurance a good tool to not only save taxes but also ensure your family is protected,” says Archit Gupta, Founder & CEO ClearTax.com, a leading tax advisory portal.

In fact, even if you are a young professional you can view life insurance, especially term cover, as the preferred tax-saving option, say experts. “A term insurance is a good option as it can provide substantial tax savings as well as an insurance cover. For young professionals who are just starting out with their career, maybe in their late 20s or early 30s, and have limited funds to invest and insure, this is one option that provides multiple benefits. Of late, with the new directive by the IRDA, ULIPs are again proving to be a viable investment vehicle that can provide good tax savings depending on the investment horizon,” Atrey Bhardwaj, AVP-Business Operations & Partner Management, BankBazaar.com

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