Insurance policies come in various forms, but with generous tax advantages. These could be term plans, endowment plans or ULIPs which offer a combination of insurance protection and investment in stocks. While term plans give a large umbrella of security with a low payout, ULIPs provide the option to grow yearly savings into substantial wealth over a period of time; the insurance cover bundled with ULIPs provides the protection several times higher than the amount invested in the initial years.
Tax Benefits – Summarised
Investing in insurance products come with two kinds of tax sops – deduction from your taxable salary and exemptions from paying taxes.
According to Section 80C and 80CC of the I-T Act, individual taxpayers and Hindu Undivided Families can claim deduction of upto Rs 1,50,000 per annum on premium paid on insurance policies. However, you can avail of this deduction if your premium paid is up to a maximum of 10 per cent of the total sum insured of the policy that is issued on or after April 1, 2012. For policies issued prior to March 31, 2012, tax laws permit deduction on premium payment of up to maximum of 20 per cent of the sum insured. Thus, if your premium payment exceeds 20 per cent of the sum assured, then you can claim deduction only up to 20 per cent of the sum assured.
The treatment of pension plans is slightly different on this. Section 80CCC allows deductions for premiums paid towards pension plans for up to the maximum of Rs 100,000.
On the exemption side, any sum received through a life insurance policy is exempt from taxation. These could be any money received as maturity payout or death benefits. Thus, in case of any unfortunate event happening to the policyholder, the nominee would not have to pay taxes on the amount received.
You can get your tax benefits if you invest in life insurance products in the name of your spouse or your children.