Life insurance premium: A Tax-Saving Mechanism
One of the significant benefits of life insurance is the tax benefit on the premium paid each year, in addition to the tax exemption on the maturity amount paid out to the beneficiaries.
We often look at life insurance premium as a tax-saving tool. The premium amount paid towards life insurance policies qualifies for deduction under Section 80C, up to a maximum of Rs 1.5 lakh a year. The gross total income gets reduced by the premium amount and, thus, reduces the tax liability.
An individual can claim tax benefit under Section 80C of the Income Tax Act, 1961, on life insurance policy(s) bought in the name of self, spouse or children. Such policy(s) can be bought for any number of children, It has been mentioned that the tax relief is available under this section on the life insurance premium paid on the lives of adult children, irrespective of their status. Let’s take an example, if you are paying the premium on the life insurance policy of your daughter who is married, you can still claim deduction on such amount.
Why are you allowed to claim deduction on your child’s policy premium?
When the children attain the age of maturity, they are allowed for tax deduction as they rely on their parent’s investments in savings plan to fund their career goals. A generic savings plan will be designed to take care of your child’s ever-changing requirements: from child education plan for rising educational costs to financial planning, extracurricular needs or even wedding, which are included in our savings plans for children.
A child education plan or a similar savings plan is designed specifically to address your child’s education needs along with a life cover throughout the term. This flexible plan gives systematic money back during your child’s years in college. The rationale is to protect a source of funds for your child’s education in case of any unfortunate eventuality. The child should be able to continue their career path even after you are gone. You may nominate a child, through the proposal form, to receive the policy benefits, who is the main the beneficiary under this policy.
The savings plan you buy for your child helps in corpus creation for your child’s future and to shield your savings from market uncertainty. The rationale is that you can support your child in whatever dream he or she carries. The savings plan ensures you don’t have to worry about your young one‘s dream to study abroad or starting his dream business. These plans are designed for you to be able to financially provide for your child’s milestones by providing the maturity benefit at the end of the policy term to ensure your little one's dreams are sufficiently taken care of.
Therefore, when you pay the life insurance premium on such a plan for your adult children, you are eligible to claim tax deduction under the Income Tax Act.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details. Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time..
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