Life Insurance Policy: Benefits and Tax Savings

Essentially, term life insurance is an agreement between two parties – the insurance policy buyer and the insurance policy provider. Under such an agreement, the policy buyer or their nominee gets a lump sum amount of money in exchange for the premium amount that they pay to the policy provider. However, the sum assured is paid out only after a pre-defined tenure or in case of an insured event covered by the policy like untimely death or accident. 

Term life insurance has emerged as a popular avenue of mobilizing savings to build a corpus and financially secure one’s future. 

That said, read along to understand how the best term life insurance policy helps mobilize savings.

Perks of Getting a Term Life Insurance Policy

These are the key benefits of the best-term life insurance policy –

  • Risk cover

Unannounced mishaps can trigger a financial crisis in anybody’s life. While individuals can’t avoid uncertainties, they can cushion the effect on one’s financial condition by investing in a life insurance policy. This is because such insurance plans are designed to offer financial assistance to the insured’s family in case of an unforeseen death or accident by offering their financial support. 

  • Different plans for different stages of life

Life insurance policies not only provide financial aid in the event of the policyholders’ untimely and accidental death but acts as a long-term investment. For instance, most leading traditional insurance plans such as traditional endowment plans, provide maturity perks and guaranteed amount. Such plans allow individuals to work towards goals like buying a home, funding children’s education, and planning a retirement fund, and eventually achieve them. Based on one’s current stage of life and goals, individuals can decide to put their money into a specific type of term life insurance plan, like say, term insurance for senior citizens.

  • Cover for rising health insurance

All life insurance companies provide financial protection against chronic illness and hospitalization expenses, whether through stand-alone plans or via riders. However, the level of health expenses and treatment cost are surging. This makes it important for individuals to purchase a health insurance plan as the same is designed to help individuals avail the required medical treatment without spending a fortune. 

  • Facilitates savings

Life insurance plans require policy buyers to make regular payments over a pre-fixed tenure, which can help the individuals develop a planned approach toward the habit of savings. Notably, consistent saving over a tenure can help policy buyers build a robust corpus that can help them meet their long-term goals. 

Guaranteed income via annuities

When it comes to retirement planning, only a few financial instruments are as efficient as life insurance plans. This is because a life insurance plan facilitates savings over time and offers a guaranteed stream of income post-retirement. Some life insurance policies offer personalized pension plans, offering a stream of income to policy buyers at regular intervals. Such a plan allows policy buyers to account for expenses post-retirement without compromising their lifestyle.

Loan facility

Did you know you take out a loan against your loan insurance policy? Leading insurance providers allow individuals to borrow money against one’s life insurance policy in case of emergency. However, the clauses to avail of the loan benefits may vary among different insurance companies. This is why, policyholders should check with their insurance providers and find out the clauses that find the loan against insurance features.

Mortgage redemption

A life insurance plan is the best tool for covering debts and mortgages availed by the insured. For instance, if an unforeseen situation like the death of the insured prevents the policyholder from repaying his or her loan or exiting the mortgage, insurance proceeds might be useful in paying off the debt burden.  In such a situation, the bereaved family members will not be burdened with the liability to repay the debt from their savings and use the insurance proceeds to account for it.

Tax Advantages: Life insurance plans allow policyholders to claim tax deductions, allowing the insured to save a significant sum of money that would otherwise be spent on paying taxes. Individuals should make an effort to find out how to claim the applicable tax benefits and use the same to save money.

How Does Life Insurance Policy Helps Save Taxes?

To make the most of the life insurance tax benefit, policyholders must understand the tax implications in detail. Here’s how components of life insurance plans are treated under the income tax rules in India.

Tax deduction under Section 80C of the Income Tax Act

The life insurance premium paid for the policy taken out in the name of parents, self, children (minor or adult,) or spouse is eligible for a tax deduction under Income Tax Act’s Section 80C. 

 However, to be able to claim the tax deduction the insurance policy premium should not be over 10% of the total sum assured, if the life insurance plan was issued post-1 April 2012.

Tax deduction under Section 10(10D) 

The insurance premium amount paid by the policyholder is less than 10% of the total sum assured under the insurance plan (issued post 1 April 20212) the maturity amount received by the insured at the end of the policy tenure is exempted from taxes under Section 10(10D) of the Income Tax Act. The same act also allows policyholders who bought an insurance policy before 1 April 2012, to claim tax deductions on the premium they paid if the same does not exceed 20% of the total sum assured for the specific insurance plan.

These tax benefits allow individuals to save on their taxes and help them build a corpus over the years, without affecting their proceeds. Keeping this information in mind individuals can plan their taxes better and also maximize the utility of their insurance policies. 

Collectively, these benefits make the best-term insurance policy also an effective tool for financial planning. Such plans allows individuals to plan toward a financially secure future by mobilizing small savings over the years and help make the insured and their family members better equipped for any emergency.


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