The only thing constant in life is, ironically, change. The unpredictability of the world can stun you and force you to seek preparedness. That is where term insurance presents itself as one of the beautiful lifelines.
What is term insurance?
Term insurance is a life insurance policy available to you for very affordable rates and shorter tenures. It is a financial contract between you as the policyholder and the insurer. It entitles you to nominate beneficiaries who will receive a lump sum amount as the death benefit in the event of your demise.
The terms of the insurance contract allow you to choose the sum assured that is paid as the death benefit. You can opt for a policy tenure between 10-99 years for term insurance and include riders for added protection. You will have to make subsequent premium payments to the insurer to uphold the policy.
In the event of your untimely death during the policy tenure, the insurer promises to pay your beneficiaries the death benefit to ease their financial struggles in the wake of losing someone they love.
Term insurance tax benefits
There are several benefits to having a suitable term insurance plan. From financial protection for your loved ones after your demise to additional riders who can help ease the monetary burden of treatments for critical illnesses, you can design your policy to benefit you. While most of the benefits of term insurance help your beneficiaries, there is one that you can use to your advantage. It is the term insurance tax benefit.
As per the Income Tax Act in India, you can claim tax exemption or term insurance tax benefits and save money. Here are the conditions of term insurance tax benefit that you must fulfil to claim the exemption:
- Under Section 80C of the Income Tax Act, if the annual premium for your policy is less than 10% of the sum assured, then you are entitled to term insurance tax benefits.
- Under Section 80C, you are also entitled to tax exemption if the annual premium is either less than INR 1.5 lacs under the old tax regime or under INR 2.5 lacs in the new tax regime.
- Under Section 80D of the Income Tax Act, if you have riders on your term insurance plan, you can deduct the premiums you pay towards them. These riders must be claimable for viable reasons such as Critical Illness cover that pays you a lump sum amount in case you require treatments against a critical disease or ailment. The total annual premium paid towards this rider alone must be lower than INR 25,000 if you are less than 60 years of age. If you are a senior citizen or above 60 years old, then the limit for the premiums is INR 50,000.
- Under Section 10(10)D, if the annual premium of the policy is less than 10% of the sum assured, and you survive the policy tenure, then the maturity benefit is tax-exempt. That means that if the annual premium of your plan meets the criteria for Section 80C, then the maturity benefit meets the criteria for Section 10(10)D. Therefore you are entitled to term insurance tax benefits on the lumpsum maturity benefit that you receive.
Apart from the above-mentioned term insurance tax benefits, your beneficiaries are also exempted from paying taxes on the death benefit that they may receive after your demise. Essentially, not only can you use term insurance to protect their future, but you can also save money while you do so.
What is the best age to buy term insurance?
Term insurance premiums are determined by many factors, among which the priorities are age, smoking habits, and illnesses. With age, the human body succumbs to many illnesses that can subsequently affect the mortality rate. Not to mention, lifestyle habits also play a major role in health and well-being, which increases the chances of early demise.
The best age to buy term insurance is as early as possible. Ideally, the best age to buy term insurance is in your 20s-30s. This is because you are less likely to incur critical illnesses, and lifestyle habits do not build into diseases either. Your health reports may present fewer chances of an early demise, which assures the insurer that you can pay the required premium.
The most advantageous aspect of term insurance is the high sum assured at reasonable premium rates. When you purchase your policy at an early age, or the best age to buy term insurance, you can avail of the benefits at an extremely affordable premium. Thus, your annual premiums will likely meet the term insurance tax benefit criteria.
By purchasing the policy at the best age to buy term insurance, you can secure the future of your loved ones and reap term insurance tax benefits for a longer duration.
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