Insurance policies are one of the tax saving instruments?

Posted by ankitagore on March 21st, 2017

Insurance policies offer protection against the unforeseen events in life and from any losses. Also, it’s one of the most popular and smart ways of saving your hard earned money from getting axed by government taxes.

. If you’re among those who rush to buy financial products at random to save tax before the financial year ends, with no long-term planning, then it’s your long-term finances that get affected.

Experts say tax savings should not be done in isolation. You should merge the larger investment plan with your tax savings instruments to maximize returns.

Premiums for life insurance policies covering you, spouse and other dependents like parents or children are eligible for tax deduction up to Rs 1.5 lakh under section 80C of the Income Tax Act. For policies issued on 1 April 2012 and later, the premium eligible for deduction is  less than 10 per cent of sum insured. Unit- linked insurance plans or ULIPS give life cover as well as equity exposure. ULIP investments are eligible for Rs 1.5 lakh deduction under section 80C. The maturity amount that the nominee receives is also tax-free under section 10 (10d) of the Income Tax Act. ULIP plans come under EEE tax module, which means that you can avail tax deduction at the time of investment, the income earned on the investment is tax-free and the maturity amount is also tax free. .

As a buyer, you have to be careful while buying an insurance policy. Many people end up buying a policy that will not offer any tax benefits. Even the money that the nominee receives in case of death of the insured person is taxable if the policy doesn’t cover the buyer for around 10 times of the annual premium. Sometimes insurance agents as well as aggregator sites may sell the insurance policies that are not eligible for tax savings just to earn commission. So it's better to consult about your Best Tax Saving Plan with your insurance agent or customer service team from the insurance companies before the purchasing the policy.

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