Premiums collected by Indian insurers, which indicates insurance penetration in the country, was at 3.90 percent of GDP in FY 2013-14. Per capita premium underwritten, which is a measure of insurance density, was at US$52.0, says a report published by the IRDA. Life insurance is not only the source of securing your family’s financial future, but is also considered as a great tax saving and wealth creation tool.
Benefits of Getting Yourself Life Insured
All insurance policies are tax saving plans and offer benefits depending upon various factors. Also, insurance products are considered a great way to create wealth. Term plans help you save money so that your family can have a substantial amount after your death. With the help of other plans you can create wealth even during your lifetime. Investment plans such as ULIPs offer you an opportunity to invest in mutual funds, while also saving. Policies like with-profit-endowment plans offer guaranteed returns, while without-profit-endowment policy and money back policy offer bonuses apart from the sum assured. With the whole life policy, you can encash the sum assured and bonuses on maturity or continue your policy till death without paying any more premiums.
All types of life insurance policies are tax saving plans and are eligible for deductions and exemptions under section 80C and 10D of the Income Tax Act. Given below is a breakdown of tax benefits for these policies.
Deductions of up to Rs. 1.5 lakhs are allowed on premium payments annually under section 80C. The maximum benefit limit of Rs. 1.5 lakhs also includes deduction from other investments allowed under this section. It is a comprehensive deduction which includes deduction from under section 80C, 80CCC and 80CCD. Also, premium payments are eligible for tax benefits only if the annual premium payment is at least 10 percent of the sum assured on death. This is applicable for both regular and single premium policies. Also, deductions under this section must not exceed 20 percent of the sum assured for policies issued on or before March 31, 2012 and it must not exceed more than 10 percent of the sum assured for policies issued on or after April 1, 2012.
The sum assured on death or maturity is also exempt from taxation under section 10D. If you surrender the policy before maturity and have paid 5 premiums, the surrender value would not be taxable. If not, then it would be treated as taxable income.
It is essential to go through the taxability of a tax saving plan before buying any insurance policy in order to be completely aware of all the benefits.