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How Life Insurance Policy Can Help You Save Taxes

How Life Insurance Policy Can Help You Save Taxes

how life insurance policy can help you save taxes

Life insurance is a much sought after asset for most individuals, since it is the ideal solution for taking care of your dependents when you are no longer around. It offers great peace of mind as it allows your loved ones to remain financially secure and assured that they will be looked after in your absence.

Life insurance policies are structured differently, depending on the individual requirements of the customer. While some are straightforward term plans, others involve provisions for the return of premium as well as investment components to generate wealth.

One of the major reasons that life insurance policies are popular is owing to the wide range of benefits they offer while the policyholder is still alive. The biggest benefit offered by life insurance policies to policyholders revolve around the tax benefits applicable on the policy.

Tax benefits are available to policyholders under three sections of the Income Tax Act 1961, namely, Sections 80C, 10(10D) and 80D. Read on to learn about how these Sections are beneficial to persons buying life insurance policies.

1. Tax Benefits Under Section 80C of the Income Tax Act:

Tax benefits are available on premiums paid towards life insurance policies under Section 80C of the Income Tax Act. The Section allows for tax exemptions up to Rs. 1.5 lakh per annum.

The tax benefit is available on premiums paid towards life insurance policies for yourself, your spouse and any dependent children.

All the tax benefits applicable to individual policyholders are also available to members of Hindu Undivided Families (HUFs). However, there are a few things to be kept in mind while opting for life insurance policies in order to avail tax benefits under Section 80C of the Income Tax Act.

  • a. If you have purchased life insurance before March 31st, 2012, the premiums paid towards your life insurance policy should not exceed 20% of the sum assured under the policy.
  • b. If your life insurance policy was purchased on or after April 1st, 2012, the premiums paid towards your life insurance policy should not exceed 10% of the sum assured under the policy.
  • c. If you purchased the life insurance policy on or after April 1st, 2013, the maximum tax deductions you can avail of is up to 15% of the total sum assured. This is applicable only for life insurance policies issued in the name of a person who is suffering from a disability, among the ones mentioned under Section 80U or an ailment as mentioned under Section 80DDB.

2. Tax Deductions Under Section 10 (10D) of the Income Tax Act:

Tax exemptions are available under Section 10(10D) of the Income Tax Act on the payouts made to policyholders of life insurance on reaching maturity as a survival benefit. This is also applicable when the sum assured is paid out to the policyholder’s nominee as a death benefit. However, there are several considerations to be taken into account for tax exemptions under Section 10(10D) of the Income Tax Act.

  • a. For policies issued until 31st March 2012, only payouts made as death benefit to the policyholder’s nominee are exempted from tax
  • b. For insurance policies that were issued before April 1st, 2012, tax exemptions are available on payouts under Section 10(10D) of the Income Tax Act if the total premiums paid are not more than 20% of the total sum assured received
  • c. For insurance policies that were issued after April 1st, 2012, tax exemptions are applicable in cases where the total premiums paid don’t exceed 10% of the sum assured
  • d. Tax exemptions are not applicable under Section 10(10D) if the payout is received under the Keyman Insurance Policy. The Keyman Insurance Policy is a special life insurance policy offered to employees, wherein payouts are made to employees in the event of the death of top-brass management of companies and organizations.

3. Tax Benefits under Section 80D:

It is possible to claim tax deductions on health insurance premiums and even for life insurance policies that offer additional health cover. For instance, those opting for riders such as Critical Illness Riders, Hospital Care Riders, Surgical Care Riders etc. can avail of deductions under Section 80D. It is possible to claim these deductions on insurance policies availed for self, spouse, children dependent on the policyholder and also your parents regardless of whether they are dependent on you or not. The tax benefits, aside from being available to individuals, can also be availed by members of Hindu Undivided Families (HUFs).

However, there are a few considerations to be kept in mind regarding tax benefits available under this Section.

  • a. Tax benefits for health insurance policies are only available on amounts up to Rs. 25,000
  • b. Additional tax deduction benefits amounting to Rs. 25,000 can be availed for health insurance premiums payable for dependent parents
  • c. If the premiums being paid for health insurance for parents who are senior citizens, you are eligible for tax benefits amounting to up to Rs. 50,000

These are the different tax benefits available to individuals paying premiums on life insurance policies. Tax benefits are a major reason why life insurance makes for a good investment instrument, both while the policyholder is alive and even after their death. Opt for the iSelect Star Plan, available on Canara HSBC Oriental Bank of Commerce, to avail of these tax benefits along with a host of other benefits including the flexibility to choose how payouts are to be paid to dependents. The iSelect Star Plan also offers lucrative features such as the ability to add spouses within the same insurance policy. Policyholders can also choose from a wide variety of payout options for their nominees, allowing for customisation of the plan in line with the policyholder’s individual requirements.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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