What Exactly Is Insurance?
Insurance is a contract (in the form of a policy) between you and an insurance company under which the firm commits to pay you for any financial loss(es) incurred as a result of particular covered occurrences.
In exchange for the financial security provided, you agree to pay the insurance company a set amount of money, known as premiums. Insurance is the most effective method of risk management, designed to protect against the danger of unexpected loss.
Life insurance, health insurance, auto insurance, property insurance, business insurance, and other forms of insurance are available. Aside from the financial security that insurance provides, you may also claim tax breaks on the premiums you pay.
What Are the Tax Advantages of Purchasing Insurance?
In this day and age, having a life insurance policy and health insurance coverage is a requirement. To improve its attractiveness, the government has permitted tax deductions on premiums paid for both types of plans.
Tax Benefits of Life Insurance
The insurance company guarantees to pay a specified quantity of money (known as the sum promised) to the nominee(s) of the covered individual if the policyholder dies within the policy period. Some plans, notably endowment, money back, and whole life policies, payout maturity benefits to the insured individual if the individual outlives the policy period.
Section 80C:
Premiums paid on a life insurance policy, such as an endowment, whole life, money-back policy, term insurance policy, or Unit Linked Insurance Plan, are tax-deductible under Section 80C of the Income Tax Act of 1961. The highest deduction available is Rs. 1,50,000.
Tax deductions on life insurance premiums can be claimed under Section 80C of the Income Tax Act of 1961 for premiums paid to insure self, spouse, dependent children, and any member of the Hindu Undivided Family.
It’s worth noting that if the insurance is issued on or before March 31, 2012, yearly premiums up to a maximum of 20% of the total guaranteed are tax deductible. Annual premiums up to 10% of the sum guaranteed are tax deductible for insurance plans established on or after April 1, 2012.
Section 80CCC
A tax deduction can be claimed under Section 80CCC of the Income Tax Act, 1961, for any sum paid into a Life Insurance Corporation of India or another insurance company’s annuity plan for the purpose of getting a pension. The highest deduction allowed under this provision is Rs. 150,000.
Section 10 (10D)
Income Tax Act Section 10 (10D) exempts you from paying taxes on the amount you receive from the life insurance provider. Subject to certain restrictions, the amount of sum assured and bonus (if any) received on policy maturity or surrender or death of the life assured are fully tax exempt in the hands of the receiver under this clause.
Tax Benefits for Health Insurance
In a health insurance policy, the insurance company will pay for an insured person’s medical and surgical expenditures if the person falls ill or is harmed in any way.
Section 80D
A tax deduction can be claimed under Section 80D of the Income Tax Act of 1961 for premiums paid toward health insurance coverage. The total deductions allowable under Section 80D are as follows:
Note:
In foregoing restrictions, a tax deduction of up to Rs. 5,000 can be claimed for costs incurred on medical check-ups or preventative health check-ups.
For the fiscal year 2018-19, the tax deduction for older folks has been increased from Rs. 30,000 to Rs. 50,000. (Announced in Budget 2018). Premiums paid for health insurance riders and critical illness insurance plans are also eligible for Section 80D tax breaks. It should be noted, however, that premiums paid for personal accident insurance or personal accident riders are not tax deductible under this clause.
Conditions Related to Claiming Tax Breaks on Life and Health Insurance Policies
Although you can pay your health insurance premiums in cash, you will not be able to receive tax advantages since income tax regulations prohibit tax deductions for premiums paid in cash.
It is consequently advised that you pay premiums via check, online banking, draft, or credit card in order to take advantage of the tax benefit on premiums. Section 80D allows for a tax deduction for cash payments for preventative health check-ups.
To claim a Section 80C tax deduction, make sure the premium paid during the fiscal year does not exceed 10% of the total guaranteed. If it exceeds this threshold, the benefits you can claim will be restricted to 10% of the sum assured. In the event of Section 10(10D), tax exemption is conditional on the premium not exceeding 10% of the total guaranteed.
Tax deductions under Sections 80C and 80D can be claimed only for the years in which the premiums were paid. If you choose a single premium life insurance policy, you can only claim Section 80C tax advantages once in the year you pay the premiums.
FAQs
The insurance company guarantees to pay a specified quantity of money (known as the sum promised) to the nominee(s) of the covered individual if the policyholder dies within the policy period. If the insured person outlives the policy period, some plans, particularly endowment policies, pay out maturity benefits to the insured person.
Section 80C of the Income Tax Act of 1961 allows for a maximum tax deduction of Rs. 1,50,000.
Premiums paid on a life insurance policy, such as endowment plans, term insurance policies, and Unit Linked Insurance Plans, are tax deductible under Section 80C of the Income Tax Act of 1961. The highest deduction allowed under this provision is Rs. 150,000.
The money you receive from the life insurance provider is free from taxation under Section 10(10D) of the Income Tax Act of 1961. Subject to certain restrictions, the amount of sum assured and bonus (if any) received on policy maturity or surrender or death of the life assured are fully tax exempt in the hands of the receiver under this clause.
In a health insurance policy, the insurance company will pay for an insured person’s medical and surgical expenditures if the person becomes ill or is harmed.
Premiums paid toward health insurance coverage are tax deductible under Section 80D of the Income Tax Act. Premiums paid for health insurance riders and critical illness insurance plans are also eligible for tax breaks under this clause. It should be noted, however, that premiums paid for personal accident insurance or personal accident riders are not tax deductible under this clause.
No, you cannot claim a tax deduction under Section 80D of the Income Tax Act if you pay your premiums in cash.
Although you can pay your health insurance premiums in cash, you will not be able to receive tax advantages since income tax regulations prohibit tax deductions for premiums paid in cash. It is consequently advised that you pay premiums via check, online banking, draught, or credit card in order to take advantage of the tax benefit on premiums. Section 80D allows for a tax deduction for cash payments for preventative health check-ups.
If you have paid health insurance premiums for yourself, your spouse, children, or parents, you can claim a tax deduction under Section 80D of the Income Tax Act of 1961.
Premiums paid toward health insurance coverage are tax deductible under Section 80D of the Income Tax Act. The total deductions allowable under Section 80D are as follows:
Premiums paid toward health insurance coverage are tax deductible under Section 80D of the Income Tax Act. The total deductions allowable under Section 80D are as follows.
MEMBERS INSURED | TOTAL DEDUCTION |
Self and family | Rs. 25,000 |
Self and family + Parents | Rs. 50,000 (Rs. 25,000 + Rs. 25,000) |
Self and family + Parents (senior citizens) | Rs. 75,000 (Rs. 25,000 + Rs. 50,000) |
Self (senior citizen) and family + Parents (senior citizens) | Rs. 1,00,000 (Rs. 50,000 + Rs. 50,000) |
Note: Within the aforesaid restrictions, a tax deduction of up to Rs.5,000 can be claimed for costs incurred on medical check-ups or preventative health check-ups.