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Best Life Insurance Policy For Tax Savings

Learn all about life insurance tax benefits, while you secure your family and build a corpus. Here’s a list of top investment plans to save on income tax.

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Purchasing a life insurance policy is a must, especially if your family is dependent on your income to survive. Even if other members of your family are earning, it would be wise to cover your life. Though a life insurance policy cannot make up for the emotional loss, it will ensure the financial security of your family members. There are several life insurance companies in India offering hundreds of policies for different needs and age groups. While choosing a life insurance plan, you also need to consider income tax implications of taking a life cover.

A life insurance policy not only offers you protection, but also provides tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.

There are several life insurance policies out there with a number of insurance plans that can help you save income tax under various sections of the Income Tax Act, 1961. You can save tax in the form of deductions and exemptions, as explained below.

Saving tax with life insurance

Deductions:

Section 80C of the Income Tax Act, 1961: There are several investment avenues that can help you save tax under Section 80C. The most popular and beneficial investment option which also offers life cover is a life insurance policy.

  • This deduction is available for individuals and HUFs (Hindu Undivided Families).
  • The maximum amount that can be exempted under Section 80C, 80CCC, and 80CCE is Rs. 1,50,000.
  • Tax deductions are only allowed on premiums up to 20% of the sum assured. If the premium paid in a particular financial year exceeds 20% of the sum assured, the deduction does not apply to the excess amount. This is relevant only to life insurance policies that were issued before 31st March 2012.
  • In case of insurance plans issued on or before the 1st of April, 2012, the deductions are allowed for premiums payable that don’t exceed 10% of the sum assured.
  • If the benefits have been claimed under this section, and the insurance policy has been terminated within 2 years from the date of commencement of the policy, the benefit will be reversed. This is relevant to life insurance plans, except ULIPs.

Exemptions:

Section 10 (10D):

  • Any benefit received against a life insurance policy qualifies for this deduction. A sum received could be

    • The sum allocated through the bonus
    • Survival benefit
    • Maturity benefit
    • Surrender value
    • Death benefit
  • Deduction under this section also applies to proceeds from a ULIP plan.
  • The proceeds received against the policy will be taxable under the following circumstances.

    • Payouts received on annuity or pension plans.
    • Group life insurance policies sponsored by employers.
    • Plans bought between the 1st of April 2003 and 31st March of 2012, whose premium amount in any year is more than 20% of the sum assured.
    • Policies bought after 1st April 2012, if the premium amount of any year is more than 10% of the sum assured.
    • Policies bought after 1st April 2013 for disabled people or those suffering from conditions as specified under Section 80DDB, if premiums on these plans are more than 15% of the sum assured. The conditions do not apply to death claims, or any payout received on the death of the life insured. There is no maximum limit on benefits that can be received under Section 10(10D).

How can you avail this benefit?

You can claim deductions for the premium paid towards life insurance policies taken for:

  • Yourself (assessee)
  • Your spouse
  • Your dependent children

Best life insurance plans in India to save taxes

Your life insurance policy is not merely a protection against unforeseen events, but also a long-term investment avenue that comes with assured benefits. Here are some of the top life insurance plans offered by some of the leading insurance providers in India.

  • SBI Life eShield: This is a non-linked online insurance policy which provides life cover with higher returns on premiums. The policy is designed to provide financial security to your family in your absence.
Parameter Criteria
Entry ageMinimum: 18 years Maximum: 60 years for increasing cover option. 65 years for level cover option.
Minimum sum assuredRs. 35,00,000
Policy term5 years for level cover 10 years for increasing cover
Premium termSame as the policy term
Minimum premium amountRs. 2779 for annual mode
Maximum premium amountNo limit
  • HDFC Life Click 2 Protect Plus: It is a term insurance plan that ensures extensive protection to your family members against the unfortunate eventuality. The policy offers income and income plus option to take care of the monthly income requirement of your loved ones.
Parameter Criteria
Entry age
Minimum: 18 years
Maximum: 65 years
Minimum sum assuredRs. 25 lakhs
Premium payment modeYearly, half-yearly, quarterly and monthly
Premium paying termRegular, limited or single
Cover options
Life option
Extra life option
Income option
Income plus option
  • Future Generali Care Plus: This is a simple life insurance plan that offers life cover at an affordable cost. The plan will ensure complete financial protection of your loved ones when you are not around.
Parameter Criteria
Entry age
Minimum: 18 years
Maximum: 65 years
Sum assured
Minimum: Rs. 10,00,000
Maximum: Rs. 24,99,999
Policy term5 to 67 years
Minimum premiumRs. 2500 per annum
Premium modesYearly, half-yearly, quarterly and monthly
Cover option
Classic option
Premier option
  • LIC’s Jeevan Labh: This policy is a non-linked and limited premium paying plan. LIC’s Jeevan Labh is an endowment plan with profits, and hence the policyholder gets the sum assured along with bonus and other benefits.
Parameter Criteria
PremiumPremium paying term is lesser than the policy term
Entry age
Minimum: 8 years
maximum: 59 years
Policy term16 years to 25 years
Loan facilityOnce you have paid the premiums for 3 years, you can avail loan against the plan.
Tax benefitsThe premiums paid are exempted under Section 80C, and the maturity amount is tax-free.

So what are you waiting for? Get a life insurance policy before it’s too late and save taxes while you protect your family. Happy saving!