Insurance is not a return-on-investment product, it is a save-your-savings product and needs to be included in your financial plan precisely for that reason.
By Biresh Giri
Health insurance is becoming more of a necessity than an option in today’s fast-paced world. Stress level and the cost of treating medical issues has gone up drastically in the recent past. In such a scenario, health insurance acts as a shield to protect your savings in case of unfortunate events like unexpected hospitalization.
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Despite being aware of health insurance benefits, people are sceptical about including insurance in their financial management portfolio. One reason for such ignorance is that health insurance as an investment doesn’t offer returns as compared to fixed deposits or mutual funds. However, insurance is not a return-on-investment product, it is a save-your-savings product; and needs to be included in your financial plan precisely for that reason.
If you are looking for more reasons to buy a health insurance plan, here’s one – buying health insurance can fetch you tax benefits. Intrigued? Read ahead to know more.
Tax saving is a crucial aspect of any financial plan, and health insurance can prove helpful in meeting this objective to an extent. Health insurance not only keeps the ‘money in your bank’ safe but also helps you to gain tax benefits under section 80D of the Indian Income Tax Act. You can claim tax benefits on health insurance premium for the year while filing your annual income tax.
Difference between Sections 80C and 80D
People can invest in a variety of tax-saving options and get a tax benefit under Section 80C. Whereas, Section 80D is dedicated to health insurance policies. You can save tax under Section 80D after purchasing health insurance for self, children, or parents.
Note that premium paid for in-laws will not fetch you tax benefits. For that, the spouse has to purchase health insurance for the parents. This will save tax for the spouse.
How to benefit from Section 80D Deductions?
Here’s a table that will help you understand the applicable tax deductions under section 80D. Note that the figures mentioned in the table can change depending upon the annual budget. The following table is for the financial year 2019-20.
Tax Benefit for Multi-year Policy
Insurance companies often offer discounts for purchasing a health insurance policy that spans over years. This way, the premium stays locked at a fixed rate and you are not affected by the price hike (if any). However, you will have to pay a huge amount upfront for a multiple-year policy. Therefore, make an informed choice if you are choosing such a plan. With respect to tax deductions, you can claim them proportionately. For example, if you pay Rs. 40000 for a two-year policy, the tax deduction applicability will be for Rs. 20000 in the first year, subject to terms and conditions.
To claim tax benefits on health insurance, make sure to pay the premium through any other payment mode apart from cash. For example, popular payment modes such as net banking, debit card and cheque are applicable.
Get Covered, Save Tax
The primary intention of buying health insurance should be to safeguard your savings in case you have to pay hefty hospital bills. Using health insurance as a tax-saving tool is an added advantage. Speak to your financial advisor or health insurance company to know the exact amount you can claim as a tax benefit against your health insurance policy.
(The author is Appointed Actuary, Head of Product Development & CRO, Acko General Insurance)