Term insurance plans are critical for protecting your family from financial ruin in the case of you lose your life unexpectedly. Furthermore, it includes adaptable features that allow you to tailor the product’s benefits to your requirements. Furthermore, did you realise that these plans can be used to save money on taxes? It gives significant tax deductions and exemption benefits. Here is more information about term insurance tax benefits and refunds. It will assist you in making better investments and saving more money. So, let’s get this party started! The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. These are also subject to change with any changes in laws.
Section 80C of the Income Tax Act of 1961 allows for a tax deduction on taxable income for financial instrument investments. As a result, premium payments for term plans are tax deductible under Section 80C. Section 80C allows for a total of $150,000 in deductions. It is applicable when purchasing term coverage for yourself, your spouse, or your children.
The terms of term insurance tax benefits apply to the HUF and its members.
Section 80D of the Income Tax Act of 1961 allows tax benefits for health insurance premiums paid. However, if you have chosen health riders as part of your term insurance plans, you may be eligible for tax breaks or benefits under Section 80D of the Income Tax Act.
Health riders under term plans provide additional financial aid to handle medical expenses incurred during the diagnosis of critical illnesses, terminal illnesses, and other illnesses. It can cover the costs of treatment and hospitalisation. It applies to a term insurance policy for yourself, your spouse, your children, or your parents. A rider, for example, provides the accidental total and permanent disability benefit for a term insurance plan, making the insured amount payable in the event of an accident that results in disability.
This deduction benefit is subject to the following conditions:
- The tax credit is available up to a maximum of INR 25,000.
- An extra deduction of INR 25,000 is available if the term plan is for the benefit of your parents.
- Also, if you or your parents are senior citizens, the deduction maximum can be increased to INR 50,000.
- These perks are also available to HUF members.
Benefits of Term Insurance Tax Exemptions
Section 10D of the Income Tax Act of 1961 exempts the payment earned on the term insurance plan from the calculation of taxable income. Use a term insurance calculator to help you. It comprises the death benefit paid to your nominee as well as any bonuses granted by the insurer. If you choose the return of premium option, you will receive a refund of the premium amount paid if you live out the policy period. The lump sum amount refund will also qualify for the tax exemption benefit.
However, for the exemption advantages to be applicable, you must meet the following conditions:
- You should not have received any money under Sections 80DD(3) or 80DDA (3).
- You should not have received any money from the Keyman Insurance Policy, which is a life insurance policy obtained by the firm or the employer for a key employee who is still working for the company.
- If the term plan is obtained before March 31, 2012, the premium must not be more than 20% of the total sum assured.
- The premium for a term plan purchased on or after April 1, 2012, should not exceed 10% of the total sum guaranteed.
We’ve seen the tax breaks offered by these plans. However, if you have decided to cancel the term plan for any reason, you can do so during the free look period. Let us look at what it means and how to apply it.
The free look period is a time limit set by insurance companies for customers to return their refundable term plan and receive a refund. The reasons could include a disagreement about the terms and circumstances, a lack of financial stability to pay the premium, discovering a better option, and so on. Using a term insurance calculator can help you avoid this.
If you decide to return the term insurance plans, you must do so within 15 days of the date of receipt. Furthermore, if you acquired the refundable term insurance plan through distance marketing, you must return it within 30 days of receiving the policy.
The following are the steps to returning the purchased term plan and receiving a refund:
- Inform the insurer of the policy termination.
- Send a letter detailing the reason for cancellation and include the original term policy paperwork.
- The insurance will commence a refund, which will be sent to your bank account.
However, the reimbursement will be subject to a deduction for the premium paid to cover the term plan’s holding period. The insurance will also deduct the amount spent on medical expenditures and other stamp duty charges.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.