How does Life insurance save tax and money?
The primary purpose of life insurance is to offer financial protection to your family by securing their future. But in retrospect, life insurance can also be an efficient way of saving tax.
When you invest in life insurance the government deducts the amount of premium you pay for the insurance policy from your tax payments. For a term investment , retirement plan, wealth plan, savings plan or an endowment investment, you can save up your tax on a maximum taxable income of Rs. 1 lakh per annum. Read More
Following are the tax exclusions availed by a life insurance investor:
- Premiums: Under Section 80C of the Income Tax Act, 1961, all life insurance policy premiums are exempt from tax within a limit of Rs. 1 lakh per year. Also, the government deems any claim amount availed by the beneficiaries or a bonus of the policyholders as tax free under the Section 10 (10D) of the Income Tax Act.
- ULIPs: Investments in ULIPs benefit the investor as market-linked policies that pose as insurance as well as investments are deducted from the person’s taxable income.
- Retirement plans: The government exempts a maximum of Rs. 1 lakh on premiums paid for pension plans under Section 80CCC of the Income Tax Act.
But one should also note that Section 80C covers investment from all kinds of health and life insurance premiums, wealth plans, government bonds, PPF investments etc. to a limit of Rs. 1 lakh per year. Thus, even if an investor pays premiums worth 1.5 lakhs for various policies, the most refund availed by him is of Rs. 1 lakh.
Thus, when you invest in life insurance , it endows you with security, but tax saving is the cherry on top.