- Insurance products, which help secure one’s future, also help save tax. But saving taxes should not be the primary aim of having an insurance policy
NEW DELHI: Did you know that you can save tax under section 80C of the Income-tax Act by investing in different insurance products? While investing in various products is vital for a well-balanced investment portfolio, investing in products that promise the highest possible returns is also critical.
Insurance products, which help secure one’s future, also help save tax. But saving taxes should not be the primary aim of having an insurance policy.
It would help to look at tax saving options which can help make wise and informed decisions:
Term insurance plans
Term life insurance is a well-known product that you must include in your financial planning portfolio. The premiums you pay for a term life insurance policy to financially secure your dependents’ future qualify for tax exemption under Section 80C of the Income Tax Act of 1961.
The maximum amount you can save by paying the premium under this section is ₹1.5 lakh. “You can even lower your taxable income by purchasing term life insurance for your parents, spouse, and children,” said Sajja Praveen Chowdary, head- term life insurance, Policybazaar.com.
Chowdary said, “If you want to take advantage of the Section 80C tax break by investing in term life insurance, you should know that the premium for policies purchased before April 1, 2012, cannot exceed 20% of the sum assured. Besides, the premium for policies purchased after April 1, 2012, cannot exceed 10% of the sum assured.”
The payout received by the nominee upon the policyholder’s death is entirely tax-free.
Unit linked insurance plan (ULIP)
You can easily save tax by investing in ULIPs (up to 2.5 lakhs) under sections 80C and 10 (10D) of the income tax act. Also, upon exiting the policy, allowed after five years) or upon maturity, the fund value is entirely tax-free.
Chowdary said, “You may also plan to invest in child plans to maximise your Section 80C savings, as child plans, in addition to assisting you in creating a sufficient corpus for your child’s secure future, also promise maximum returns.”
Apart from providing family protection cover, an endowment policy is a life insurance policy that also helps you save regularly over a specific period to get a lump sum amount on policy maturity if you survive the policy period.
The premium you pay for up to ₹1.5 lakh is tax-deductible and helps to reduce the tax burden by lowering your taxable income. You can claim such a deduction under section 80C of the income tax act.
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