Saving Tax on Insurance Plans in India
Getting insured is the one the important essentials of an earning individual who has family dependants. The important part of insurance planning is Tax saving and Tax planning. Smart planning before choosing your insurance plan serves the dual objective to meet all the major financial goals with tax savings advantage.
Tax savings through insurance can be broadly classified into three avenues:
The simple idea behind buying insurance is to protect your family from financial insecurities even in your absence. Since insurance is an important part of a person’s financial portfolio one must aim to but his insurance plan early in life. The insurance holders can choose from a wide range of coverage plans like whole life plan, term insurance, money back insurance plans, endowment plans and unit-linked insurance plans.
From the major perspective of tax saving all insurance plans are considered as equal under tax laws. All the premium amounts paid under the insurance plans are deductible under the tax laws.
Tax benefits under life insurance plans:
- Maximum Rs. 1.50 lakh deduction can be claimed
- Tax benefits under Section 80C
- Tax-free sum assured on death or maturity under Section 10(D)
Health insurance or Mediclaim
A health insurance plan or mediclaim insurance is more common to providing coverage on the uncertain risks like accidents or medical and hospitalisation expenses based on the sum assured.
Various health insurance plans have to cater various tax benefits to their insurance holders based on the plan structure. Health insurance plans are a good option for tax saving since they offer tax benefits on a premium amount up to RS 20,000 for the (senior citizens) and RS 15,000 (others). Also, an insurance holder can avail a tax benefit of RS 35,000, if is pays a premium amount of RS 15,000 on his insurance plan and RS 20,000 as a premium amount on behalf of his parents who are senior citizen.
Tax benefits under health insurance plans:
- Maximum Rs.20,000 (senior citizen) and Rs.15,000 (others) tax benefit can be availed
- Tax benefit under Section 80D
- Tax-free maturity benefits on the sum assured amount of critical illness rider
**Note: All the tax benefits are subject to change as per tax laws.
Retirement Pension plans
The retirement plans or annuity plans are the best insurance options for retired individuals and people who are looking for annuity plans to live a hassle free life even after they retire. Wherein, life insurance plans are structured in a way to provide financial security to the family of insurance holder in case of his death.
The whole idea of providing pension is hurdled in 2 ways i.e. Accrual & Withdrawal. At the time of accrual, the insurance holder pays the premium amount in order to withdraw or earn the accumulated benefits when he retires. Retirement is the withdrawal phase of an individual which is exactly when the insurance plans blooms hence, it provides benefits of tax at the time fund accumulation.
Tax benefits under retirement plans:
- Maximum of Rs.1.50 lakh deduction can be claimed under such plans.
- Tax benefits under Section 80C
- A portion of the accumulated benefits is considered as tax-free and rest is taxed as income on the marginal tax rate.
Commonly made mistakes before buying insurance plans:
Getting insured online is the most convenient and hassle freeway. The emergence of E-business of selling the insurance products online has made the entire journey of getting insured mush easier and faster. Starting from doing a market research of products and their services to maintaining a track of the insurance plans, online market space has made the whole process very convenient for both the buyer and sellers of the insurance plans.
Although, insurance products are now specially structured to fit various expectations of an individual from an insurance product there are still some commonly made mistakes before buying insurance plans:
Purchase without research:
Before buying an insurance plan an individual considers a couple of important factors of an insurance plan which includes the claim settlement and the solvency ratio of the insurance company. In the case of traditional term insurance plans the plan benefits and the premium structure is an important point to consider. According to the IRDA recent changes an insurance company has to make claim rejections after 3 years since plan inception. Hence, choosing an insurance plan is more convenient as an individual can focus on the other features of insurance plans like benefits, inclusions, exclusions etc.
While filling the online insurance application form it is important to fill all the information correctly as per documentation. In a case, if any fact is found missing or manipulated the insurance company has the rights to freeze the insurance. Similarly, if the insurance holder after getting insured finds any information by the provided by the company as false or misleading then he/she is free to make a complaint.
Getting sufficient coverage:
Various insurance plans are available at affordable rates that provide higher assured sum amount. Due to lack of sufficient knowledge individuals buy insurance plans with higher premium amount, however, other plans which have similar features incur lower premium amount. Several times the insurance holders face difficulties in getting the required assured sum amount and also end up paying a huge premium amount. In order to avoid this, it is always advised to use an online premium calculator to compare the insurance plans and get insured with the best plan.
Insurance for tax saving purpose only:
Choosing an insurance plan just to save tax is always a wrong insurance move since the basic idea of an insurance plan is to provide coverage and provide financial security to the loved ones of the insurance holder. In order to save tax, insurance individuals choose insurance plans that provide lower sum assured amount which leads to insurance purchase blunder. Before getting insured or planning for it an individual must clear between actual agenda of the insurance plan with the benefits it has to provide.
Before we conclude
All Life Insurance Plans and Pension plans provide tax benefits under section 80C on their premiums and can be best utilised if insured at the beginning of the year. Plans with tax benefits review the basic needs of income with tax advantages. This ensures the insurance holder gets the most out of the insurance along with saving taxes.