Explore the Term Insurance Tax Benefits for Future Planning
A term insurance plan is a basic form of life insurance that offers death benefits to your family in case of an unfortunate event. It provides a lump sum amount to the nominee if the policyholder passes away during the policy tenure.
It also offers tax benefits, which can give you immense savings and can be further reinvested to grow your wealth. Together, let us explore term insurance tax benefits to help you decide if it is worth investing.
What is Term Insurance?
A term insurance plan is a protection plan that offers coverage for a specific period in exchange for a fixed premium. If the policyholder dies during the term, the beneficiary (Nominee) receives a lump sum payout. This amount is subject to tax benefits.
Tax Benefits of Term Insurance
1. Tax-Free Death Benefit
The primary advantage is the tax-free nature of the death benefit. The tax-free death benefit helps transfer funds to beneficiaries without tax implications, ensuring financial stability across generations.
The funds assured received by the nominee are generally not subject to income tax. It can be immensely beneficial in providing a financial cushion to the family without tax implications.
2. Term Insurance Tax Benefits under Section 80C, Section 80D and Section 10 (10D)
Term insurance plan also offers tax benefits as premiums are paid under Section 80C of the Income Tax Act 1961. The premium paid attracts tax deductions up to a limit of INR 1.5 lakh in a year. Moreover, the death benefit payout, which is received under the term plan insurance, is fully exempted under Section 10 (10D) of the Income Tax Act 1961.
Other than this, if a policyholder opts for a critical illness rider along with term insurance plans, then they can avail of tax benefits on premiums paid under 80D.
3. Wealth Transfer and Estate Planning
Term insurance also plays a crucial role in estate planning. The tax-free death benefit is an essential tool for estate planning, allowing individuals to preserve their assets and provide them to their loved ones.
By leveraging the tax-free nature of this benefit, individuals can ensure their legacy is protected and their beneficiaries receive the full inheritance.
4. Rider Benefits
Some riders, such as critical illness or disability riders, may offer additional term insurance tax benefits. These can provide financial support in case of unforeseen health challenges, further enhancing the value of term insurance.
How Term Insurance Aids Future Planning
• Financial Protection for Dependents: A term insurance plan financially protects your loved ones in case of a policyholder's death. It can be beneficial for your dependents because they may receive term insurance tax benefits from the death benefit. This can be used to bridge the gap in expenses.
• Facilitating Retirement Goals: You can receive term insurance tax benefits on a return of premium or regular income after the age of 60, offering a survival benefit. The funds are paid as a premium if you survive under the return of premium option. The regular income option pays the sum assured as monthly income if you survive till 60.
• Protection against Critical Illnesses: A policyholder can enjoy additional term insurance tax benefits in case of critical illness like kidney failure, heart attack, cancer, etc. Before buying the best term insurance policy, check whether the plan offers protection against terminal or critical illnesses.
When it comes to securing the future of your family and reducing your tax liability, the strategic utilisation of the term insurance tax benefit is a smart move. It is crucial to consider the benefits of term insurance and explore extensive policies like those offered by reliable financial institutions like Canara HSBC Life Insurance. They provide various solutions to help you achieve a secure future. By making informed decisions today, you can pave the way for a financially stable tomorrow with confidence.
(No Hans India Journalist was involved in creation of this content)