Here’s How to Use Insurance Plans to Save Income Tax

Here’s How to Use Insurance Plans to Save Income Tax

Insurance products like life and health policies, apart from security, are also excellent tax-saving financial instruments. Check out this post to know how they can help you reduce your income tax liabilities.

For something as unpredictable as health and life itself, the only thing that we as humans could do is to take necessary precautions. Life and health insurance are two products that give security to our lives. Life insurance helps you ensure financial safety for our loved ones in case of our demise, whereas, health insurance policy helps reduce the financial implications of receiving quality healthcare.

But apart from security, they are also excellent tools to help save taxes. Here is how you can use life and health insurance policies to save income tax-

Tax Deductions on Life Insurance

Under Section 80C of the IT Act, you can claim tax deductions of up to Rs. 1.5 lakhs on the premiums you pay towards a life policy. You can take this policy for yourself, your spouse, parents, or dependent children. The tax deduction is available for life policies like-

  • Whole life policies
  • Endowment plans
  • Term plans
  • Money-back plans
  • ULIPs

If you recently purchased any of the life plans listed above, you are eligible to claim deductions of up to Rs. 1.5 lakhs in a financial year.

Points to Remember for Claiming Deductions on Life Policy Premiums

Here are some points that you should keep in mind to claim this deduction-

  • The deduction is only available for individuals and HUFs
  • For policies purchased after April 1, 2012, the premium of the policy should not be more than 10% of the sum assured to claim this tax deduction
  • For policies purchased before April 1, 2012, the premium of the policy should not be more than 20% of the sum assured to claim this tax deduction
  • Traditional plans should not be surrendered before two years to claim the tax deduction
  • Policies like ULIPs should not be surrendered before five years to claim this deduction

Tax Deductions on Health Insurance

Under Section 80D of the IT Act, premiums paid for health insurance of up to Rs. 25,000 in a financial year are eligible for tax deductions. You can take the policy for yourself, your spouse, parents, and dependent children. The deduction limit is up to Rs. 50,000 for policyholders above 60 years.

If you purchase a policy for yourself (below 60 years) and another policy for your parents (above 60 years), the total deduction would be Rs. 75,000. In case if you as well as your parents are above 60 years, the maximum deduction limit is Rs. 1 lakh.

The tax deduction is available for health policies like-

  • Standard health insurance plans
  • Mediclaim plains
  • Top-up plans
  • Critical illness plans
  • Health insurance add-ons

With the rising medical inflation in the country, health insurance is now a must for every individual, irrespective of their age or health condition. The availability of tax deduction on health policy premiums only enhances their importance.

Points to Remember for Claiming Deductions on Health Policy Premiums

Just like life insurance, there are a few points to remember for claiming tax deductions on health policy premiums-

  • The deduction is only available for individuals and HUFs
  • Personal accident plans are not eligible for this deduction
  • Premiums paid in cash are not eligible for this deduction
  • Deduction of up to Rs. 5,000 on preventive health check-ups are also available under Section 80D, but this is within the premium deduction limit

Insurance for Security and Tax Savings

Life and health insurance policy adds security to your life. They keep you adequately prepared for the unexpected, not only helping you but even your family members. Apart from the crucial security, the policies are also eligible for tax deductions, as discussed above. So, add more safety to your life by purchasing insurance and save taxes in a legal and hassle-free manner.

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