Life insurance is a contract you sign with an insurance provider. The insurance firm receives monthly premium payments from you, the policyholder, in exchange for a gross sum payable upon the insured’s passing (death benefit) and/or upon the expiration of the insurance term (maturity benefit).
Remember that a life insurance calculator is a simple and easy-to-use tool you may use online to determine the amount of coverage required based on your needs.
Tax Advantages Of Life Insurance
Besides maturity/death benefits, life insurance contracts can get life insurance tax benefits under Sections 80C and 10(10D) of the Income Tax Act of 1961.
Let’s examine the two provisions that have an impact on taxes:
Article 80 C
Any person, resident or non-resident, may deduct up to Rs. 1.50 lakh annually for life insurance premiums paid under Section 80 C. This deduction is possible, along with other qualifying goods like PPF, ELSS, NSC, house loan repayment, fixed deposits, college fees paid, and provident fund contribution.
Only life insurance premiums up to 10% of the amount assured are deductible under section 80C of the tax code. Any premium paid more than 10% is not eligible for a deduction. However, up to 15% of the insured amount, up to a maximum of INR 1.5 lakh per year, is exempt for some people who are considered handicapped or have a serious illness.
Section 10 (10D)
The Income-tax Act’s Section 10 (10D) decides if the maturity proceeds from your life insurance policy are tax-free or not. Any sum paid out under the insurance plan, whether a death benefit, plan maturity, or other bonuses, is subject to Section 10(10D).
Based on the premium paid, maturity benefits (given upon survival for a predetermined amount of time) are occasionally taxed.
According to section 10 (10D), for life insurance policies purchased after April 1, 2012, if the yearly premium paid is greater than 10% of the policy’s sum insured, the maturity proceeds (survival benefits) will get taxed based on your income tax bracket. If not, the money and life insurance tax benefits are free of taxes.
To avoid taxes, the premium for life insurance plans issued between April 1, 2003, and March 31, 2012, should be less than 20% of the insured sum.
For specific people who fit the following description:
1. Individuals who are disabled or severely incapacitated as defined by Section 80U of the Income Tax Act of 1961.
2. People with the conditions listed in Section 80DDB of the Income Tax Act of 1961.
3. For plans purchased before April 1, 2013, maturity benefits are not subject to taxes if premiums do not exceed 15% of the amount assured.
Criteria For Section 10(10D) Of The Income Tax Act Eligibility
1. Life insurance claim payouts, such as death benefits and maturity benefits, including accrued bonuses, are eligible for tax deductions under Section 10(10D).
2. All life insurance policy claim payouts are eligible for Section 10(10D) tax deductions.
3. The tax benefits provided by Section 10(10D) of the Income Tax Act are not subject to any maximum.
4. Foreign and Indian life insurance companies are both eligible for deductions.
Taxation Of ULIPs
If the requirements above are satisfied, gains from single-premium life insurance policies and unit-linked insurance plans (ULIPs) are also subject to the advantages of section 10(10D).
To refresh your memory, ULIPs are insurance policies where you pay the premium for a specific number of years (often around five), which the insurer invests for you, and offers a life insurance cover (typically for a sum insured of 10 lakhs). After a holding period (for instance, five additional years) following the conclusion of the premium payment term, you will eventually get a maturity benefit. Your beneficiaries will receive an additional death benefit of INR 10 lakhs if you, unfortunately, pass away within this time limit.
Each year you pay the premium, you are eligible to claim a 1.5 lakh income tax exemption under the 80C limit. You are not eligible to deduct any taxes on the maturity amount of 21 lakhs because your annual premium is 65000×4=2.6 lakhs. Your returns will not be excluded from taxation because your yearly premium payment exceeds Rs. 2.5 lakhs; instead, they will be subject to long-term capital gains (LTCG) taxation.
And know that a life insurance calculator is a simple tool to check the amount of premium you would have to pay.