Tax Benefit on Life Insurance Policies

The first investment one should make when they start earning is to buy life insurance. Not only is it an ultimate savings tool, but you can also reap a number of tax benefits off it as well. The right life insurance policies are life a safe deposit, where put in your premium over the term of the policy and save for you long term goals. They are also a great tool for tax planning, something that is extremely important for everyone.

How can your life insurance policies help you save tax, you ask? The benefit of tax deduction is available for Premium paid on life insurance policies under Section 80C of the Income Tax Act.

What is this section all about? As per this section of the Income Tax Act, an individual can claim up to Rs.1, 50,000 from his or her taxable income as a deduction. Deductions are provisions created by the government to help taxpaying citizens save their money. However, these deductions have to be put to good use, which means, this amount must be invested in tax savings plans, life insurance policies or endowment policies. Under this section, you can also claim deductions for tuition fees for education, for medical expenses incurred or even for the payment of the principle amount of your home loan or the stamp duty and registration charges incurred while buying a new home. In the case of life insurance, you can claim a part of your income, that you pay as your life insurance premium, as a deduction.

To be eligible for this deduction though, you need to fulfil certain criteria. You can only claim this deduction if you are the purchaser of the life insurance policy. It can be either for you or for your spouse. You cannot claim this deduction if you’re simple paying the life insurance premium for anyone else. You can benefit from health insurance for parents. So keep in mind, for whom you are buying and what type of insurance are you buying, speak your life insurance company and clear any doubts you might have about this.

Life insurance policies are an investment everyone should make. It is the first step to your financial planning. It should be treated more as an investment than an insurance policy. At the end of the term the pay out that you received from your life insurance company and the premium that you pay them is completely tax free.