Which insurance plan is good for tax savings?
Bharti: Hey, Asha received last month's salary. The amount was very less as I had received it after tax deductions. This month I already had too many expenses which could not have been avoided. This way if it continues, I will have to switch jobs to get a better package to create financial assets for my family.
Asha: Hey, don't lose heart. You are working hard here and for savings, you do not have to switch jobs. Instead, it is time to use your brain and buy some tax savings policies.
Bharti: tax savings! What is that and is that even possible especially with insurance policies. To me, insurance is endless paying of premium for the benefit and that too when you die.
Asha: Bharti, living in this century you cannot be so financially illiterate. We are living in an era where saving is the rule to succeed in a stress-free life. For now, you must immediately buy a life insurance policy to get tax exemptions.
Bharti: Thanks but can you tell me which is the best insurance plan to save tax?
Asha: You can check the plans online or call your financial advisor to know a tax saving insurance plan that suits your requirements.
Bharti: Ohkay thanks for your help!
If like Bharti, you have wasted enough time and have given away the important part of your earnings in tax, you must immediately buy insurance policies.
Let us now look at the insurance plans that are good for tax savings.
Insurance Plans that are good for Tax Saving
These are the best insurance plan to save tax:
Life insurance policies in India are considered critical when you have to choose financial security as well as create financial assets. Life insurance policies largely are a cover for family or the dependents who rely on the policyholder for their living.
The insurance type helps to save tax which is regardless of the policies that you buy.
Under life insurance, you can buy any of these types of life insurance that can cater to different financial requirements in life.
Term Life Insurance Policy is a cover for a specific period of time. After paying the premium for a definite period, if anything happens to the policyholder during the policy term, the nominee receives the sum assured.
Whole Life Plan is an insurance plan for the whole life but only if the premiums are paid. This is a permanent policy that helps you build cash value over time. But if during the policy term anything happens to the policyholder, the nominee receives the death benefit. So, you get tax exemption as well you have funds created over time.
Money-back plans are quite comfortable life insurance policies where the insured gets a percentage of the sum assured at regular intervals. Instead of getting the whole sum assured at the end of the policy as a maturity benefit, the money-back plan gives you a money breather in the middle of the policy tenure also.
Unit Linked Insurance Plans is a double protection cover in which you get life cover as well as an investment option. The policy premium you pay is divided into two parts, one of which goes to investment funds and the other goes to the life protection cover. Under ULIPs, you have the choice to choose or switch funds as per your choice. ULIPs are long term investment plans to create huge funds over time.
The maximum deduction which you can claim under the life insurance policies is Rs.1.5 lakhs. You can claim this benefit under Section 80 C. Apart from the premium, tax-free proceeds benefits can be gained under Section 10(10D).
Another type of life insurance is pension plans that have a different end goal. A life insurance policy is designed to safeguard a person's family in the event of his death whereas a pension is designed to provide for the person and his family if he survives to see another day.
The pension process is divided into two phases: accumulation (a person saves money during his working years) and withdrawal ( a phase when you retire).
Maximum tax deductions are applicable under Section 80 CCC of Income Tax Act of 1961. The total exemption allowed is Rs.1.5 lakhs. 1/3rd of the accumulated amount received on maturity is tax-free. The balance 2/3rd is treated as income and taxed at the marginal tax rate. The amount which is received upon the death of the beneficiary is tax-free.
Health Insurance Plans
Other than life insurance policies, health insurance plans you purchase can also be filed for income tax exemption under Section 80 D. The deduction is also available for health plans and critical illness plans. You get the tax benefit if you pay a health insurance premium for dependent parents, self, spouse, and dependent children.
The tax deduction limit under section 80 Dm is Rs.25000/- in one financial year. For senior citizens, the total limit of exemption allowed is Rs.50,000/-.
Paying taxes is as important as saving taxes. But you cannot give a considerable part of your earnings in tax. A better way to optimize your earnings is to plan your finances. You need to make segments of expenses, one of which is tax. You can save taxes by buying insurance policies that will help not only you but your family in crisis. When you buy an insurance policy, you pay a premium for it, which is an expense. But in the long run, if you pay a premium continuously over a long period of time, you will make a huge corpus of funds. No security is more meaningful than financial safety. Build a better tomorrow with tax-saving insurance plans.