Having a mediclaim policy adds to your financial safety at the time of a medical emergency. Read on to know how Premiums paid towards health insurance policy give you an insurance cover with certain tax benefits!
After a life insurance plan, health insurance is undoubtedly one of the most important plan that you should have in your insurance portfolio. All you need to do is pay regular premiums to the insurance company to stay financially covered against medical emergencies. Moreover, just as life insurance, health insurance policies act as an efficient tax-saving tool too. It provides you with tax benefits under Section 80D of the Insurance Act, 1961. Despite the medical benefits, a health insurance policy substantially reduces your annual income tax liability. The mediclaim premiums paid for self, spouse, dependent children and parents make you eligible for tax exemption under Section 80D. As per the section, the premiums paid towards a health insurance policy is deductible from your taxable income.
Tax benefits of health insurance policy
As per income tax law for the FY 2019-20, there are a few essential things about the tax benefits on health insurance policies. Any individual or HUF is eligible to claim a tax deduction on the premium paid towards Mediclaim or health insurance policy for self, spouse, dependent children and parents. The maximum deduction allowed is Rs. 25,000 for the premium paid for self, spouse and children.
It is important to note that children above the age of 18 cannot be covered, if they are employed. Female child, if not employed, can be covered until she is married.
- As per Section 80D of the Income Tax Act, 1961, you can receive additional tax benefits of Rs. 25,000 on premiums paid for the health insurance policy for your parents, irrespective of the fact that they are dependent on you or not.
- Under the same act, you can claim deduction up to Rs. 50,000 for your senior citizen parents’ health insurance plan, including annual
preventive health check-ups.
- In case you are a senior citizen i.e. 60 years or above, and you pay health insurance premiums for any of your parents, who are also senior citizen, you can avail tax exemption up to Rs. 1 lakh.
The premium paid towards critical illness plan or health insurance rider under a life insurance policy qualifies for tax benefit under Section 80D.
Preventive health check-ups
Tax deduction is also available under Section 80D of the Income Tax Act for preventive health check-ups. The Act allows you to claim deduction up to Rs. 5,000 if you have gone through any medical tests, or health check-up, provided you have proof. It is important to note that this is not over and above the individual deduction limit under Section 80D.
You may pay the health insurance premium in cash. However, to avail tax benefits, you have to pay premium through a bank account. You may, however, pay the premium using net banking, cheque, draft, or by credit card to get the income tax advantage. However, cash payment made for preventive health check-ups are eligible for Section 80D benefits.
What is a Mediclaim Deduction?
An individual taxpayer is eligible to receive mediclaim deductions under Section 80D of the Insurance Act, 1961. The health insurance premiums paid for the family members mentioned below are eligible for mediclaim deductions:
- Dependent children
Hindu Undivided families (HUFs) are also eligible to receive tax deductions under this section. The Mediclaim/health premiums paid for any member of HUF can be used to claim tax deductions, which is, however, subject to the maximum limit as per the Income Tax Act, 1961. As per the Union Budget announced on 1st February 2018, by Finance Minister, Mr. Arun Jaitley, the tax deduction on premiums paid towards health insurance policies were increased. The tax deduction was revised from Rs. 30,000 to Rs. 50,000 for all senior citizens. This increase in tax deductions aims to benefit senior citizens along with anyone who pays premiums for health insurance policies on behalf of the senior citizen.
Features of health insurance policies
Lifetime renewability: As per IRDAI regulations, insurance companies are required to offer health insurance for any age up to 65 years. Many private insurers, however, do not have such age limits on health insurance policies. Moreover, once the policy is issued, the insured has the right to continue renewing it for lifelong.
Pre-existing conditions: All insurance plans cover pre-existing conditions, but after a specific waiting period. The waiting period may range from 12 months to 48 months, and may change as per the discretion of the insurer. However, coverage of pre-existing medical illness is conditional upon the buyer honestly making medical disclosures at the time of purchasing the policy. In case the insurance company suspects that the insured was aware of the pre-existing ailment at the time of obtaining the policy, then the insurance company may refuse to process the claim.
No medical examination up to the age of 45 years: Most insurance companies do not require buyers below 45 years of age to undertake medical screening, unless he/she has an adverse medical history.
Sub-limit: Today, sub-limits under health insurance policies have become an important feature to consider. The total medical cost during hospitalisation typically includes room rent, doctor’s fees, operation chares, medicine cost among different other cost-heads. Sub-limits refer to limiting reimbursement under cost-heads to a pre-defined level.
Daycare and OPD expenses: Generally, the most critical requirement of a health insurance policy claim is the minimum hospitalisation of 24 hours. However, due to technological advancement, certain treatments require less time. Therefore, many health insurance policies have started offering coverage for daycare expenses such as chemotherapy, dialysis, etc. among others. Lately, more and more people have started living a healthy lifestyle, backing it up with healthcare programme. This perhaps helps, but does not remove the risk of falling sick and being hospitalised due to unforeseen events. The need for health insurance is becoming critical, and consequently choosing the right health insurance policy has become very important.
While choosing a health insurance policy, you should ideally start by comparing plans from 3 to 4 preferred insurers. Take a close look at several inclusions and exclusions in the most basic policy being offered by them. It is advisable not to base your decision solely on the cost. Instead, look for simple health insurance policies with fewer conditions and restrictions on them.
Recommended: Get Tax Benefits from Mediclaim for Senior Citizen