Why Term Policy is the Best Tax Saving Insurance

Insurance plans are only effective when they are tailored to suit the needs of a family, that is one of the reasons why there are so many different insurance plans out there in the market. An insurance policy will provide cover in the event of the death of the policyholder; people invest in insurance for this very reason. But if you need to make sure that your insurance amount is sufficient enough to see your family through tough times, you need to take various factors into consideration before opting for an insurance policy. These factors include, the current income of your family, your loans if any, your expenses etc. But at the same time you also need to consider what type of Life Insurance you want to invest in. 

A term plan insurance is the simplest and also the cheapest form of insurance. Once the policy term is up or in case of the death of the policyholder, whichever is first the nominee receives a lump sum payment from the insurer. If the policyholder outlives the policy, he/she receives no benefit. But on the other hand the premium for term insurance is minimal.

One of the key benefits of term policy is that it comes with a hoard of tax benefits for the policyholder and also the nominee. Here’s are some of the Tax Benefits that come along with a term plan.

1.  On premium: The insurance premium paid by the policyholder is allowed deduction under the provisions of Section 80C of the Act. This means that this part of your income is exempt from Income Tax. The maximum amount of deduction that an assessed can claim will be limited to Rs 1,50,000 under Sections 80C, 80CCC of the Act.

2. On insurance pay out: Under Section 10(10D) of the Income Tax Act the nominee of a term plan insurance receives exemption of income tax on the amount he/she receives on an insurance pay out. The sum allocated by way of bonus on such policy, is also exempt from any income tax.

Along with providing tax benefits to the policyholder, term plan insurance also provides simplicity, flexibility and renewability to the policyholder. Many term life insurance policies are "renewable" and "convertible." Renewability ensures that you can go in for another Term Policy without a medical exam at the end of the first term policy. Convertibility allows you to convert your term life policy into an endowment policy for the same sum assured with associated increase in premium, should this make sense during the term of the policy.