Do Term Insurance Plans provide tax benefits under 80C?

Does every month’s salary give you a feeling that your expenses are higher and the earnings are less? Do you want to earn more or save more? Is your current lifestyle and loan liability too much for you to pay?

Thoughts of having less money and higher expenditures can leave you irked. It can shake you from within if there are hardly any assets that offer security. 

When you realize that the current demands are essential, you ought to take a loan for it. But the constant pressure of paying the loan gives you enough worries. If this is the case with you, often thoughts of saving money and building securities would strike your mind.

For ages, the traditional way of creating financial security for dependents in the family is through a life insurance policy. The reason for insurance being a primary choice to pick is because it offers life security, options of savings, and tax benefits.

There’s no rocket science behind this. It is simply that a life insurance policy provides multiple benefits.

At times, tax savings is the prime intent when buying a life insurance policy. In this case, a common mindset would be to avoid spending money. This is where the alternative of a term insurance policy plays.

Let us explore more about term insurance.

What is Term Insurance?

A term insurance policy is a life insurance policy that offers financial security to the dependents of the life insured. The policy pays the death benefit to the nominee only after the life insured passes away during the policy period.

The premium for the term insurance is low but the limit of the life cover is high.

For example, Rohit, age 21 years, wants to purchase a term insurance policy for his family. He found the options and bought a term insurance policy for Rs.1 crore at just Rs.477/- per month.

• Term insurance attracts individuals because it is an affordable life insurance policy with a high life cover.
• People have shown interest in the term life insurance policy because it now covers Covid-19 life claims also.
• Buying a term insurance early in life is helpful because the premium is less when you are young. Also the premium under the term insurance policy remains the same for the entire policy term.

Term insurance plans provide you with several benefits.

Do term insurance plans provide tax benefits under Section 80C?

Yes, term insurance provides tax benefits under Section 80C of the Income Tax Act, 1961. The total amount of Rs.1.5 lakhs is allowed under the life insurance policy for the deduction. Apart from this, the total death benefit that the nominee receives is also tax exempted under Section 10(10D).

If the life insured outlives the total policy term, the life insurance policy will give you maturity benefits. The amount is to help the family gain stability after the life insured has died. This is why the total maturity amount is tax-exempted.

Other than the tax savings, there are other benefits that the term insurance policy offers.

Benefits of Term Insurance Policy:

Who buys anything without considering the benefits of it. Before you buy term insurance, these are the benefits that you can consider:

• High Life Cover at Affordable Premiums: The term insurance policy provides a large amount of life cover at an affordable premium. You can get a cover as high as Rs.1 crore for just Rs.477/month.
• Long Life Cover: The term plan gives you a long life cover up to age 100. For example Rohit, age 21 years, purchased a term insurance policy. Now he can get cover under the term insurance policy for next 79 years.
• Help Manage Loan Liabilities: The term plan helps your family pay-off the loan liabilities when you are not around. The claim amount can be used to pay financial burden liabilities like home loan, car loan, education loan, etc.
• Flexible Pay-Out Benefit: A term life insurance policy provides financial stability to the nominee after the life insured passes away. The policy provides an opportunity to the life insured to choose the payout but at the inception.

The life insured can choose the payout the nominee will receive after the death, depending on their lifestyle or financial requirements. The payout can be either in the form of a lump sum or as monthly income. This will help families manage regular expenses and other financial needs.

• Inbuilt-Terminal Illness Cover: A term insurance policy comes with an inbuilt-terminal illness cover. Terminal illness is the state that leads to death within 6 months after detection. The illness can wipe away your savings and this is where a term insurance policy will pay.
• Option to enhance cover with riders: Term insurance policy allows you to provide you with the choice to increase the scope of cover with the riders. You can pay an extra premium and get the additional cover. For example: Rohit owns a term plan of Rs.1 crore and took an accidental death benefit rider cover for Rs.50 lakhs. After 5 years of the policy, Rahul died in an accident. The policy paid him an additional benefit. His nominee will get a total of Rs.1.5 crores for the claim.

Some insurance companies provide a return of premium option. Under this, the entire premium paid will be returned if the life insured survives the policy term.

After reading the benefits of the term insurance plan, you can read about the different types of term insurance plans.

Types of Term Insurance Policies.

There are six different types of term insurance policies that you can consider as a feature before buying the plan.

1. Level Term Plans: This is the most simple and the basic type of term insurance plan under which the sum assured remains the same throughout the policy tenure. The benefits will be paid to the nominee after the death of the life insured.
2. Increasing Term Plans: Another plan option is increasing term plans in which the life insured has the option to increase the sum assured annually. The premium amount will remain the same.
3. Decreasing Term Plans: Under the decreasing term plans, the sum assured will decrease to meet the requirements accordingly. A decreasing term plan helps when the policyholder has to pay the loan or other EMIs.
4. Return of Premium Plans: The plan comes with a maturity benefit in which the life insured will receive all the premiums paid. The benefit applies only when the life insured survives the policy term.
5. Term Plan with Riders: It is a term plan which is easily expanded with rider covers. Riders are additional covers that can be included after paying extra premiums. Some of the riders that you can think of buying include accidental death rider, accidental death and disability rider, critical illness rider, hospital care rider, surgical care rider, and waiver of premium rider.
6. Convertible Term Plan: This term insurance allows policyholders to convert the existing plan into other types. For example, Rohit can convert his term insurance policy into an endowment plan after a few years.

Conclusion:

Amongst all life insurance policies, the most suitable and affordable option is to look for the best tax saver term insurance plans. The term insurance applies for a specific period through which you can expect the tax savings. All the premium you pay for a term insurance policy is eligible for a tax deduction. When it comes to tax planning, many individuals opt for deductions under Section 80C of the Income Tax Act, 1961. For more details on term insurance and tax benefits.