Why do people purchase term insurance plans? Of course, the primary reason could be securing the financial future of their families in case anything untoward happens within the policy period. In addition, a term policy ensures that the family or nominee gets a sizable amount to take care of future requirements if the policyholder passes away.
The second and vital reason people invest in these policies is the chance to get tax savings. Term plans are always popular choices for getting tax benefits, and this aspect remains unchanged for those choosing the older tax regime. The government’s new tax regime is optional and does not come with these tax deductions. So why are these policies preferred tax-saving instruments? Here’s looking at the same in this article.
Reasons behind the popularity of term insurance as a tax-saving tool
Here are some of the biggest reasons behind the popularity of term insurance plans for tax-saving purposes.
- Deductions under Section 80C- Term insurance plans ensure attractive benefits for taxpayers under Section 80C of the Income Tax Act. They can claim deductions up to Rs. 1.5 lakh per year on the premium payments under this section. This benefit is available even if you pay premiums for yourself and your dependent children and spouse, subject to the total limit. This deduction goes a long way toward lowering your annual tax outgo.
- Deductions under Section 80D- Section 80D offers deductions for premium payments in the case of health insurance coverage. How does it apply to term plans? You can add a critical illness rider to your policy or any other health-related rider, for that matter. Premium payments will entitle you to deductions up to Rs. 25,000. It is when the policy is for you, your dependent children, or your spouse. If the policy is for your parents, who are senior citizens, you can get deductions up to Rs. 50,000. It is a great way to maximize your tax benefits with a term insurance policy.
- Benefits under Section 10 (10D)- For term insurance policies, the death benefit paid by the insurer to the nominee in case of the policyholder’s demise within the policy period will be exempted from taxes. Section 10 (10D) grants this provision for nominees or beneficiaries.
What else makes term insurance so attractive for policyholders?
Several other aspects contribute to the attractiveness of term insurance for policyholders. First, these plans come with comparatively affordable premiums compared to many types of life insurance policies. They ensure higher coverage for a lesser amount. There are flexible options for premium payments, namely monthly, quarterly, bi-annually, or annually, depending on the policyholder’s requirements.
Simultaneously, policyholders can choose their desired coverage for a specific duration and purchase their policies swiftly online without any heavy paperwork or formalities. These are several aspects that make term insurance policies doubly attractive to policyholders.
While buying a term insurance plan, ensure you do your homework on the available policies and the coverage your family needs. Calculate future liabilities, family goals, living costs, and other aspects before zeroing in on a coverage amount. You can use a term insurance plan calculator to get an idea of the premium payable at your end. Check the insurer’s claim settlement ratio to ensure that you buy your policy from a reputed firm with a steady track record of settling claims. You should also ensure that you pay your premiums before their due dates to avoid policy and coverage lapses.