Investment Deadline for FY20-21 gets closer – Here is how insurance products can help you
March 15, 2021 12:28 PM
As the investment deadline for FY2020-21 is getting closer, it is time to make your final investments. Going for various insurance products is also a wise decision.
Here are some prominent tax-saving instruments that will apart from helping you in saving tax will also provide you with adequate financial protection against unforeseen financial emergencies.
If you still have not made your tax-saving related investments for the current financial year – 2020-2021 – you must hurry as the last date, i.e. 31st March, 2021, for filing investment proofs is just around the corner. Only last few days are left to make the final move and claim tax deduction under Section 80C and 80D of the Income Tax Act, by investing your money in various instruments such as Health Insurance, Term Life Insurance or other investment products.
However, while investing in insurance products to save tax, people must understand that insurance are much more than just tax-saving tools and must be bought with utmost precautions and understanding to avail maximum benefits at the time of need. To help you, here are some prominent tax-saving instruments that will apart from helping you in saving tax will also provide you with adequate financial protection against unforeseen financial emergencies. So, make your investments wisely!
One of the most sought-after ways of saving tax while staying adequately and financially protected against planned and unplanned hospitalisation expenses is buying a health insurance plan for you and your family. As per the Section 80D of the Income Tax Act, 1961, the premiums that you pay against the health insurance policy that covers you, your spouse, dependent children and parents qualify for tax-rebate.
The maximum rebate that you can avail under Section 80D is Rs 1,00,000 that includes Rs 25,000 for health insurance taken for self, spouse and dependent children, and Rs 25,000 for health insurance taken for parents. Moreover, if your parents are senior citizens i.e. above the age of 60 years, you can avail an additional tax-rebate of Rs 25,000 and if even you are a senior citizen, you can also avail an additional exemption of Rs 25,000. This brings your total tax rebate to Rs 1,00,000.
Life Insurance and Long Term Investment Products – Section 80C
Yet another prominent way of availing tax benefit under the Income Tax Act, 1961 is Section 80C which allows a maximum tax exemption of Rs 1,50,000. The premiums paid against various life insurance and long-term savings products qualify for tax exemption. An exclusive benefit of investing in several products that qualify for tax rebate under Section 80D is that the maturity amount or the death benefit that dependents receive on death of the life insured is also exempted from income tax. However, in order to avail the benefit, one must know that the premium for policies purchased before April 1, 2012, must not exceed 20% of the sum assured and premium for policies purchased post April 1, 2012 must not exceed 10% of the sum assured. Below are some of the popular products that are included under Section 80C.
Term Life Insurance
One of the most important investment products that must be a part of your investment portfolio is term life insurance. Under a term life insurance, the life insured pays a fixed premium up to the coverage/policy duration against a defined sum assured. On death of the life insured within the policy term, the dependents receive the entire sum assured as lump sum payout. The premiums paid against the term plan qualify for tax rebate, also the sum assured that the dependents receive as payout is completely tax-free.
Guaranteed Return Products
A latest addition to the category is Guaranteed Return Products that promise you guaranteed returns on the capital invested. These category of life insurance products offer guaranteed returns. Apart from offering maximum returns, also have an in-built life protection element that ensures that even if the policyholder dies, the dependents get the promised money. A guaranteed return product gives you initial tax benefit, and tax-free returns.
Unit Linked Insurance Plan (ULIP)
The new-age Unit Linked Insurance Plans are also a popular choice amongst the investors looking for tax-free investments and returns. These products come with a mandatory lock-in period of 5 years and can be bought by the customers for a tenure of 5, 10, 15, 20, 25 or 30 years depending upon your needs and requirements. These products are best advised for people who wish to build a substantial corpus of one-time expenses like child’s education or marriage and self-retirement.