Investment rules are different for different financial instruments. While for most instruments – including health insurance – an individual is permitted to invest/pay a premium for his/her parents, the rule is different for life insurance.
As per the rules, you can’t buy a life insurance policy for your parents but your parents and even your grandparents can propose and pay a premium to buy an insurance policy for you.
Apart from the insurance benefits, premium paid for a life insurance policy also provides tax benefits u/s 80C of the Income Tax Act.
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“Amongst various deductions available to a taxpayer u/s 80C of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’), a taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction u/s 80C in respect of premium on life insurance policy paid by him/her during the year subject to the cumulative threshold limit of Rs 1.5 lakh per year,” said Dr Suresh Surana, Founder, RSM India.
But, if a person buys a life insurance policy for his/her grandson/granddaughter and pays the premium, can the person claim tax deductions on the premium amount benefits u/s 80C?
“In case of an individual, deduction is available in respect of policy taken in the name of the taxpayer or his/her spouse or his/her children in accordance with Section 80C(8)(iii) of the IT Act,” said Dr Surana.
“Thus, a person buying a life insurance policy for his grandson/ granddaughter would not be able to claim the benefit of deduction on the premium paid on such policy as grandchildren are not exclusively covered within the definition of family for the purpose of claiming life insurance premium paid u/s 80C of the IT Act,” he added.
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So, you may buy a life insurance policy for your grandchild, but can’t claim tax benefits on the amount of premium paid.