Life insurance can provide financial assistance to the family of the policyholder in case he/she meets with an untimely demise. It also offers other advantages like tax benefits.
Read this article to understand how life insurance can help you save tax.
Life insurances offers a wide variety of benefits. It provides the death benefit to the policyholder’s family. The policy can also help a person build a substantial corpus for retirement. Furthermore, a life insurance policy provides tax benefits.
When a person invests in a life insurance plan, he/she is allowed to claim tax deductions. Thus, it can help in reducing the tax liability.
Let’s take a look at some of the tax benefits that a life insurance policy offers-
- By investing in life insurance, you can save a lot of money on taxes. You can claim tax deduction up to Rs. 1.5 Lakh under Section 80C.
- If you have a pension plan, then you can receive a tax deduction up to Rs. 1.5 Lakh under Section 80CCC. At maturity, a part of the income is taxable. However, the rest of the amount remains tax-free.
- The death benefit is exempted from tax under Section 10(10D).
- The premium paid for a health insurance policy is also eligible for a tax deduction. A policyholder can claim tax deduction up to Rs. 25,000 under Section 80(D). However, the tax deduction limit for senior citizens is up to Rs. 50,000.
Now that you know the tax benefits of life insurance, let’s understand how to decide the right cover amount.
A life insurance policy offers a sum assured to the family of the policyholder in case he/she meets with an untimely demise. Therefore, it is crucial for the policyholder to decide the right cover amount. By selecting the right cover amount, a policyholder can ensure that his/her family receives adequate financial support.
There are various factors that a person should consider while deciding the cover amount-
- Income
In case the policyholder dies untimely during the tenure, the insurer can provide a sum assured to his/her family. This cover should be sufficient for replacing the income of the insured person. It is recommended that the cover amount should be 20 times the annual salary. Therefore, a person should first consider his/her current income while selecting the cover amount.
- Purpose
While deciding the cover amount, a person needs to consider the future expenses of his/her family. He/she needs to consider his/her children’s education costs, expected monthly expenses, etc. If the cover amount is low, then it might be inadequate for the family.
- Debts
While it is important to determine future expenses, it is also crucial to consider the debts. The cover amount selected by a person should be sufficient to repay the debts.
A life insurance policy can provide financial support to your family. It can also offer tax benefits and help you build a retirement corpus. Therefore, it is important to select the right cover amount.