Life Insurance
A great way to protect your family
Life is beautiful and mysterious. No human can guarantee another person's life duration. Death is inevitable and uncertain. That's why leaving family behind with financial stability is the responsibility of every individual. Getting a life insurance policy with the best benefits will give your loved ones a good life. Different plans of life insurance as below
Term life insurance
Term life insurance is a type of life insurance that provides coverage for a specific period of time, such as 10 or 20 years. This type of insurance is often used to protect your loved ones financially if you die during the term of the policy.
Whole life insurance
Whole life insurance is a type of life insurance that provides coverage for your entire life. This type of insurance is often used to build up a death benefit and to accumulate cash value over time.
Unit Linked Insurance Plan
ULIP combines life insurance with investment features. This means that you can protect your loved ones financially even after you die, while also investing money for future growth.
Group life insurance
It is a type of life insurance that is offered to a group of people at once, such as employees of a company or members of a union.
Endowment Plans
This plan comes with the dual advantage of life cover and savings. The policyholder receives a lump sum amount on maturity or in case of demise, the nominee receives the sum assured.
Moneyback Policy
This policy is suitable for those who wish to receive a certain amount on a timely basis. So, no need to wait for the policy’s term to be finished.
Child Insurance Plans
This plan is designed to secure your child’s future. Policyholders can make sure their children’s education and other expenses are secured in case of their death.
Retirement Insurance Plans
These plans help the policyholder get a regular income stream along with protection of a corpus amount in retirement.
Term Insurance with Return of Premium
This is a kind of term insurance with maturity benefit. You can get a life cover along with receiving a premium amount with the completion of the term's duration.
Why do you need to life insurance ?
Life is uncertain as no one can predict anyone’s lifespan. You don’t want to burden your loved ones with a financial responsibility as they would be overwhelmed with handling the grief of your absence. For those days, having a life insurance policy is the most crucial. Here are a few reasons why you need to have your life insured
- Financial protection.
- Debt management.
- Children’s education.
- Partner’s retirement planning.
- Easy liquidity.
- Income replacement.
- Tax planning.
Tax benefit for life insurance
In the case of life insurance policies, there are different tax-saving stages that you should know about.
So, let’s assess the tax-saving benefits of each stage in detail
Tax benefit on the premium paid for a life insurance policy
The premium that you pay for a life insurance policy is allowed as a deduction from taxable income. This deduction is allowed under Section 80C of the Income Tax Act, 1961. The limit of deduction that you can claim is lowest of the following –
- The actual amount of premium paid
- 10% of the sum assured
- INR 1.5 lakhs
The maximum limit allowed under Section 80C, however, is limited to Rs.1.5 lakhs.If you buy a pension plan, the same tax benefit is allowed on the premium that you pay. However, the tax benefit section changes from 80C to 80CCC.
Tax benefit on the maturity benefit received from a life insurance policy
The maturity benefit received from a life insurance policy, except a pension plan, including any bonus additions, guaranteed additions, loyalty additions, etc., is tax-free under Section 10(10D). This tax benefit is available only if your premium is up to 10% of the sum assured. If the premium exceeds 10% of the sum assured, the maturity benefit would become fully taxable in your hands.
In the case of unit-linked insurance plans (ULIP’s), if the aggregate premium paid for all unit-linked policies in your name is up to Rs 5 lakhs in a financial year, the maturity benefit would be tax-free. Here also, the premium should be within 10% of the sum assured to avail of the tax benefit
Tax benefit on the maturity proceeds of an annuity policy
In the case of pension plans, the annuity that you receive is taxable at your income tax slab rates. However, in the case of deferred pension plans, there are tax benefits on maturity.
On maturity, the deferred pension policy allows you to withdraw up to 60% of the accumulated corpus in a lump sum. This is called the commutation of pension. If you opt for the commutation, you get tax benefits on the money withdrawn. Up to 1/3rd part of the corpus that you commute is allowed as a tax-free income in your hands. The remaining corpus that you withdraw, however, would be taxed at your income tax slab rates.
Tax benefit on the surrender value of a life insurance policy
If you surrender your life insurance policy and avail of the surrender value, the value can be claimed as a tax-free income. However, to avail of this tax exemption, you have to fulfill the following conditions –
- For your single premium policies, if you surrender the policy after the first two years of buying the plan, the surrender value you receive is tax-free.
- If you have a regular premium plan, the surrender value is tax-free only if you have paid the premiums for the policy for at least 2 full years.
- In the case of Unit Linked Plans, the surrender value becomes tax-free only if the policy is surrendered after 5 years.
- For your pension plans, the surrender value is always taxable. It is taxed at your income tax slab rate in the year in which you receive the value.
So, if you want to surrender your life insurance policy, find out the type of policy you have. Then determine whether the qualifying conditions have been fulfilled so that you can receive the surrender value without any tax implication.