Buying a life insurance policy in India is a wise move for long-term benefits. It is primarily intended to secure the financial futures of your family members and loved ones. At the same time, it also helps you get attractive tax savings. Doesn’t this aspect make it a win-win proposition? Most people would say yes. Several types of life insurance plans are available, from term insurance policies and endowment plans to whole life insurance and more. You can choose not only your tenure but also your frequency of paying premiums. Simultaneously, health insurance is non-negotiable in any portfolio, too, safeguarding you from the financial impact of medical expenditure and treatment while giving you tax benefits as well. Here are insurance policies that you should choose in order to get the best possible tax savings.
Life Insurance for Tax Savings
Life insurance is one of the most important coverage options for individuals and families, as outlined above. At the same time, whenever you are in doubt regarding tax savings, you can simply stick to the good old life insurance plan. It gives you tax deductions up to Rs. 1.5 lakh on your premium payments every year under Section 80C. This naturally deducts a sizable amount of money from your gross taxable income in each financial year. It is applicable for premium payments on term insurance plans, ULIPs, money-back plans, endowment plans, and so on.
You can also get tax exemptions on your life insurance maturity payouts under Section 10 (10D), which also applies to death benefits. Hence, life insurance gives you both deductions and exemptions. However, there are certain conditions on these deductions and exemptions, which differ from one policy type to the other. Read about the tax benefits that are available as per the current taxation rules for the policy you are purchasing.
Health Insurance
Health insurance is also a necessity for your portfolio. Make sure that you have adequate health coverage to cover the costs of treatment, hospitalization, and medical care in the future. While you are at it, you will get deductions under Section 80D on your premium payments. You can get deductions up to Rs. 25,000 under this section. If you are a senior citizen, you can get deductions up to Rs. 50,000. Subject to various scenarios, the maximum deduction available under this section is Rs. 1 lakh.
Here is a table that will illustrate this concept in the best possible manner:
| Category | Maximum Deduction Limit | ||
|---|---|---|---|
| Self, spouse and dependent children are NSC and Parents are NSC | Self, spouse and dependent children are NSC and Parents are SC | Self, spouse and dependent children are SC and Parents are SC | |
| Health insurance premium (including preventive health check-up threshold of Rs. 5000) of self, spouse and dependent children | ₹ 25,000 | ₹ 25,000 | ₹ 50,000 |
| Health insurance premium and preventive health check-up for Parents | ₹ 25000 | ₹ 50,000 | ₹ 50,000 |
| Health expenditure of self, spouse and dependent children | N/A | N/A | Covered within the overall limit |
| Medical expenditure for parents | Not applicable | Covered within the overall limit | Covered within the overall limit |
| Total Section 80D Limit | ₹ 50,000 | ₹ 75,000 | ₹ 1,00,000 |
*NSC= Non Senior Citizen
SC= Senior Citizen
Conclusion
As you can see, these are the two basic types of policies that will get you the tax benefits that you require. It is also vital to note that life and health insurance both give you tax deductions, i.e., applicable amounts that are subtracted from your gross taxable income to arrive at the net taxable income while calculating your tax liabilities for any financial year. At the same time, life insurance also gives you exemptions, i.e., tax-free payouts or benefits. Hence, whenever you are in doubt about the best tax-saving options to choose, simply invest in life and health insurance to financially safeguard yourself and your family from various unfortunate scenarios in life. The accompanying tax benefits are the icing on the cake, although they should not be your primary motivation for investing in these plans.