What are the various tax benefits associated with life insurance products?
Life insurance products come with tax-saving deductions as under:
- Life insurance premium payments made up to Rs 1.5 lakh under Section 80C in the name of the taxpayer, taxpayer’s spouse or children
- ULIP investments up to Rs 1.5 lakh under Section 80C. ULIPs are unit linked insurance plans that provide a mix of life insurance and equity investments
Is life insurance a good tool to save tax?
Life insurance is a very important part of one’s financial well being. Insurance should be given priority over investments for anyone who has dependants. This makes life insurance a good tool to not only save taxes but also ensure your family is protected.
How does life insurance fare as a combination of investment options along with tax saving compared to other tax-saving instruments?
Life insurance shouldn’t be treated as an investment. The goal of life insurance should be to protect one’s family and dependents, not to get some kind of return from it. This is why term insurance is the best form of life insurance–it comes cheap and serves the basic purpose of providing protection. ULIPs are products that provide insurance as well as investment, but they come with high commissions and are not transparent enough to evaluate adequately. Hence, insurance and investment should be approached separately.
Ideally, one should get enough life insurance after taking into consideration factors like income, expenses, debt and age. Then, depending on how much of the Rs 1.5 lakh 80C limit is left, the taxpayer can consider investment options like ELSS funds and NPS.
An excerpt from here was published in The Indian Express on 27 October 2016.