Insurance and its Tax Benefits

We hear about Insurance all the time. Our cars have to be insured. Sometimes, we purchase medical insurance to insure ourselves and our families.  We buy life insurance too. The primary purpose of buying an insurance policy, well, should be insuring oneself or insuring an asset! But does insurance have tax benefits too? What are those? Let’s take a look.

Asset  Insurance, Building Insurance – If you are a freelancer, Insurance on business assets, like laptops, and insurance of your office is a deductible expense from your freelancing income. For salaried individuals – no deduction is allowed when they insure their assets like cars or bikes.

Health Insurance – Deduction under section 80D is allowed for premium paid towards Health insurance for self, spouse, dependent children and for parents. The maximum deduction that can be claimed under this section is Rs 40,000.

Life Insurance Premium – Life Insurance Premium (including payments made by Government employees to Central Govt Employees Insurance Scheme) are eligible for deduction under Section 80C. The policy must be for self or spouse or children (children may be dependent/independent, minor/major, or married/unmarried). For a HUF, it may be on life of any member of HUF. Also note that maturity proceeds from a life insurance policy are exempt under section 10(10D) of the Income Tax Act.

Unit Linked Insurance Plan – From a ULIP the goal is to provide wealth creation along with life cover.  The seller of a ULIP puts a portion of your investment towards life insurance and rest into a fund that is based on equity or debt or both and matches with your long term goal. These goals could be retirement planning, children’s education or another important event you may wish to save for. The portion of your installment that you pay towards life insurance in a ULIP is allowed as a deduction under section 80C.

Pension Policy – As the name suggests Pension policies are aimed at providing you a pension, a financial support in the years of your retirement. Premium paid to keep a pension policy in force is allowed as a deduction under section 80CCC. However, the deduction under section 80CCC is included in the overall limit of Rs 1,50,000 under section 80C.

Consider an insurance plan that suits your needs & goals and do keep in mind to take the tax benefit too!

If you have any questions, reach out to us

 

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