We all understand that to err is human, however, the slightest mistake while financial planning can get bite you when you expect it the least.
One of the most common financial mistakes by us is when in a hurry we make tax-saving investment wherein we do not calculate the insurance requirements and neglect to get a risk cover, says Resclaim, a company that specialises in appealing rejected insurance claims.
There are times when people buy a term insurance plan just to avail the tax benefits offered within the plan and do not consider the needs or the requirements.
Should I Consider Tax Benefit When Buying Term Plan?
The tax benefit is an important factor; however, this does not mean that this will be the sole factor when buying the term insurance plan. It is to be noted that a term plan is essentially an income replacement instrument for any family who has lost the breadwinner.
The term plan provides financial security to the insured’s family in case of any adversities. Therefore, never make the purchase decision on the premise of the low term insurance premium or to avail the tax benefit. Rather assess the insurance requirements, read the terms and conditions of the policy thoroughly and make an informed decision.
How Valuable is a Term Insurance Plan?
When it comes to tax savings there is no doubt that a term plan is valuable. The term insurance premium qualifies for tax exemptions within Section 80C and the nominee also receives an exemption from the tax. However, this does not mean that one should buy a term plan just to meet the tax requirements. It is time to understand that buying any sort of insurance is an investment, investment of your hard-earned money.
Moreover, the term insurance plans are not preferred as it does not offer a surrender or maturity benefit. This is one of the key reasons that the people invest the money in buying a ULIP or even an endowment plan wherein the returns are expected but at the peril of accessing low protection cover.
The term plans enable an individual to protect the family against any income loss and provides a high-risk cover for the members of the family and that too at a low term insurance premium comparatively. On the other hand, ULIP or endowment plans helps to create a wealth corpus as well as provides risk cover.
The ideal time to buy a term insurance plan is as early as possible as the premium will be low. Besides, when buying a term plan, have a look over the additional rider options available and include it in the plan if required. The rider premium is also eligible for the tax benefits and therefore should not be neglected. Adding the rider benefit options will also enhance the term insurance plan in every possible manner.
What are the Tax Benefits Offered by Term Insurance Plan?
Now, let us discuss the various tax-benefits offered under 1961, Income Tax Act listed below:
- Benefit Within Section 80C: Within Section 80C, it essentially permits an exemption for any life insurance premium until Rs 1.5 lakh each year. This sum likewise would also include the premium that is paid for the child or the spouse. The policy that has been issued either on or after 2012; April 01 will also obtain a tax deduction that is limited to ten per cent of the complete sum assured. In case the person is suffering from any disease/ ailment that is listed within the section 80DDB or is suffering from any disability listed within Section 80U then the above ten per cent will get an increase to fifteen per cent.
- Benefit Within Section 10 (10D): As one can to save tax on the premiums, likewise one can also save upon the returns within Section 10 (10D). The maturity sum or the death benefit obtained remains complete exempt within the provision of this segment. The exemptions are given to the nominees and it also comes along with no upper limit. It is additionally expressed in Section 10 (10D) that the maturity sum will be available if the top-notch payable in any of the years during the time of the policy surpasses 20 per cent of the genuine sum assured. In any case, this situation once in a while happens in a term plan as the sum assured is commonly a lot higher than the yearly premium.
In any case, it is also suggested to consult a tax expert in case of any dilemma and make the decision wisely as the benefits will differ for a certain case or the tax bracket.
IRDA manages and makes arrangements to set up a customer agreeable condition. One of the arrangements is a free-look period. Under this arrangement, if you have bought a policy and acknowledge you disagree with any terms and conditions you can restore the approach to the insurance provider inside a predefined time-span expressing the explanation and obtain a refund. The period for the return of the policy is 15 days from the date of the receipt of the plan. If the plan was bought from distance marketing, at that point the free look time frame is 30 days from the receipt of the plan.
You should simply send a letter educating about the plan’s cancellation referencing the explanation behind abrogation alongside an original plan document to the insurance provider. The refund will be given by the insurance provider subject to the derivation of the proportionate peril premium for the period upon the cover, the costs caused on medical assessment assuming any, and stamp obligation.
The Bottom Line
With buying a term insurance plan, you will fulfil your responsibilities towards your family as it will provide a safety net to the family when you are not around.
Moreover, you can also easily avail the tax benefits in the procedure. In case you were not aware of the various tax benefit, now that you know make the most of it. In the process of saving tax, do not forget the prime intent of buying the term plan is protection. So, do not compromise on that and get the cover accordingly.
Happy Tax Saving!