Tax Benefits and Refund Details About Term Insurance
Posted: Nov 14, 2019
Not taking vaccinations for certain diseases, might not cause a lot of problems. However, it leaves you vulnerable to the disease and you will constantly have the fear of the same. Buying a term life insurance is similar to taking vaccinations. There is no harm in not buying one. But the ones who do buy a term plan, have complete peace of mind when it comes to the financials of their loved ones in the future.
Term insurance plans being the purest form of insurance, ensure that your loved ones continue to lead the same life that you always wanted them to, even in your absence. Should the worst take place, the insurance company will provide the sum assured to the nominees of the policy.
This will help them to not only look after immediate finances but also take care of long-term goals.
However, there is a bit more to a term insurance plan than just providing the highest life cover at incredibly low prices. Term insurance plans come with multiple tax benefits, of which we will learn now.
Under Section 80C, the Income Tax Act of 1961 allows taxpayers to deduct an amount up to INR 1,50,000 for a fiscal year if they were to make investments under certain heads. And insurance is one such category. Any investment towards life insurance plans allows you to avail of this benefit. A term insurance plan is a pure insurance plan, qualifies for these benefits as well.
In other words, the premiums that you pay towards your term insurance plan will help you reduce your tax liability. The premium amount is tax-deductible under Section 80C. The benefit is available for you, your spouse and even your children. But there are a few conditions that you must be aware of.
As already mentioned, there are various heads under which you can invest to avail benefits of Section 80C. If you have a term insurance plan, you can still invest in other avenues to make the most of Section 80C.
Section 10(10D) of the Income Tax Act of 1961, simply offers tax exemptions on the proceeds of an insurance plan. According to the Act, if nominees of policy were to receive any proceeds from a term insurance plan, the amount is non-taxable. Should the nominees receive the sum assured as a death benefit of a term plan, they do not have to pay any taxes on the same. And the no taxation clause holds good even if they receive the funds in India or any other country.
Yet, there are a few conditions where this Section might not be valid. This includes:
For all the policies purchased between the 1st of April 2003 and 31st of March 2012, the tax exemption is applicable only if the yearly premiums do not exceed 20% of the sum assured of the policy.
This section allows for tax benefits on the premiums paid towards health insurance plans. One might wonder, how is this relevant to a term insurance plan. A few term insurance plans have inbuilt cover for critical illness, hospital care, surgical care, etc. You can even opt for these covers as riders to your policy. In such cases, you can avail of deductions up to INR 25,000 annually. And an additional INR 25,000 exemption if you have policies for your parents.
To ensure that buying insurance policies are customer-friendly, the IRDAI has included certain measures. One of these allows policy buyers to have a free-look period. The free look in the period ranges from 15 to 30 days. And within this duration, you have all the rights to cancel the policy, if you are not happy with it. In such a case, the insurer will refund the entire premium amount to you, barring any medical tests that you might have undergone.
I am Tanuja Koshy working with one of the leading online insurance aggregators as a General Manager. I manage and drive online investments, short term and long term insurance like home insurance, travel insurance, health insurance, term insurance.