The Tax Saving Plan That Most Agents Will Hide From You

New Year is just around the corner and as expected, we start receiving reminders about collating and submitting our investment proofs to avoid huge deductions from our January-February-March pay. We go through our investments to realise exactly how much we owe as taxes. If a tax deduction is discovered, we desperately search for solutions - anything that can help shave off that looming tax deduction and save money! We absolutely love to pay as little tax as possible.

In such desperate times, we blindly accept what is offered to us by our agents. Agents apart from charging you a good amount as consultation fee would usually pile you up with products from which they earn a good commissions like Postal Savings Certificates - NSC / KVP or Tax Saving Mutual Funds. They suggest Bank Fixed Deposits as the very last resort since they do not get any commission on these. They will ask you to make a lump-sum investment to cut down your tax liability. The primary motive being they want you to come back to them every year and they can continue to add commission based products in your portfolio.

Today, we are going to look at one product that offers a big bang for every rupee that you spend on it.

You guessed it right, “Term Insurance”! It offers you 4 X benefits against every rupee that you spend in it. However, your agent may be knowingly or unknowingly hiding this master blaster from you. It is high time you know more about it.

Benefit 1: Protection:

Life is a happy journey meant to be spend with your loved ones, enjoying every new development. However, it can turn into a struggle in the absence of the sole bread winner of the family. As inflation goes up, the already difficult journey of your family members in making the ends meet can turn into a dreaded nightmare for your family. Here, the protection offered by term plans in the form of Life Cover comes to the rescue of your loved ones. Believe it or not, a Term Insurance Plan, provides you a huge life cover which is cheaper than your everyday evening tea and snack. For example, a 30 year old male non-smoker can get term insurance protection of Rs. 1 Crore for a period of 50 years i.e. until the age of 80 years for a premium of Rs. 730 per month only i.e. around Rs. 25 per day.

Benefit 2:Tax Savings on Premiums Paid:

The magic words you had been waiting to read. Term Insurance Products offer you tax benefits under two primary heads i.e. Deduction Benefit and Exemption Benefit. The premium that you pay towards the Term Insurance product qualifies for deduction from your taxable income under Section 80C of the Income Tax Act, 1961. The maximum deduction that you can avail under this Section is of Rs. 1,50,000. You as an Individual and members of Hindu Undivided Family (HUF) can avail this benefit, the only condition being the Term Insurance policy has been issued in the name of:

• Yourself i.e. Individual
• His/her spouse
• His/her children

For example, you earn Rs 5 lakh annually and your total income tax deduction amounts to Rs 23,690. Now you can save Rs 1.5 lakh by paying term insurance premiums and claiming deductions under section 80C. You can thus bring down your income tax liability to just Rs 10,000 - a 57.7% reduction. Imagine the amount of money saved, and as it is rightly said ‘Money Saved = Money Earned’!

Benefit 3: Tax Savings on Added Protection - Riders:

Term Insurance policy allow you to attach a wide range of additional protection add-ons i.e. Riders to your base plan to get all round protection for yourself with riders like Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc.

These health benefit riders qualify your rider premiums for deductions under Section 80D of the Income Tax Act, 1961. Individuals and members of HUF can avail this benefit for a maximum amount of Rs. 25,000. The policy again has to be in the name of the individual, spouse or dependent children.

Here, we can also take into account the health insurance or mediclaim plan offered by health insurance and general insurance companies to individuals. These plans are designed to protect your savings from unforeseen medical expenses. Health insurance and mediclaim plans reimburse the expenses incurred for treatment and hospitalization or offer cashless facility. The tax benefit availed for premiums paid towards such plans are eligible for deduction under Section 80D are as under:

• For yourself, spouse, and dependent children: Up to Rs.25,000
• For parents: An additional Rs.25,000
• For parents who are senior citizens: Rs.30,000

You are also allowed to make a deduction claim for payments on preventative health check-ups of Rs. 5,000 within the above prescribed overall limit.

Benefit 4: Tax Savings on Benefit Pay-outs:

The other benefit of exemption kicks in at the time you receive a payout from the term insurance policies you have been diligently paying premiums for. The entire proceeds of such payouts is exempted under section 10 (10D) of Income Tax Act, 1961. The term insurance plans offer payouts under the following heads:

• Death Benefit - In case of your unfortunate death, your loved ones will receive the life cover amount chosen by you along with the accumulated bonuses, if any, as the death benefit.
• Maturity Benefit - For term insurance plans with Return of Premium Options, the payout received by you on the completion of the defined policy term which includes the sum of all the premiums paid and any added percentage over and above is completely tax exempted.

An important point that needs to be noted here is that there is no cap on the maximum amount that is exempted under this section. So, the entire amount paid by the insurance company to you or your loved ones becomes tax-free in their hands. Say, you have a Term Insurance policy with a sum assured of Rs. 5 crore, after a period of 5 years down the line you meet with a tragic accident and pass away. Now the insurance company pays the death benefit of Rs. 5 Crore, this entire amount is tax free in the hands of your loved ones!

So, the bottom line is that it is high time you stopped trusting your agents blindly and invested in products suggested by them without a second thought. Get more value for every penny spent by you!

In this unpredictable journey of life, providing a protection and financial security for the future of your loved ones should be your first and utmost important priority. So, now you are well versed with the combined 4X benefits offered by term insurance plans of protection. To add to it, the saving of your hand earned money from the ‘tax axe’ is like an icing on the cake.

Don’t wait around because the New Year Bell is going to ring soon. If you still have doubts you can always take help from experts, it is readily available here at Coverfox.com. Also recently, Coverfox has launched, a free of charge cohesive claims support service, which includes facilities like legal counseling, financial and psychological support.