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Tax Savings And Products From Life Insurance Companies


wealthymattersInsurance companies provide insurance and that’s very important in itself. But long after some people have met their safety needs and perhaps even accumulated so much wealth and secured it in a way that makes life insurance plans to provide for bereaved dependents superfluous, you find them still opting for investments in products from life insurance companies….Ever wonder why ?The answer is that, never mind what most run-of-the-mill financial advisors say, a FEW of these plans do provide excellent returns, and help create wealth,  provided a person is wealthy enough to be able to wait the decades to realize the benefits of these returns or better still think in multi-generational terms. Further, intelligently played , these products offer a way of mitigating the risk of falling interest rates on savings that all of us face. Next factor in tax and the numerous tax advantages products from life insurance companies offer and you start seeing the wisdom in what these wealthy people do.

Aegon Life has published a tax guide on it’s website to help you explain all things related to taxes and tax-planning.

However, if you’d like to educate yourself in peace before dealing with any sales pitches, here’s what you need to know:

1.Section 80C of the Income Tax Act offers tax deductions upto a total limit of Rs1,50,000/- (cumulative) for investments made in a whole host of products. Life Insurance premiums paid for policies in the name of self, spouse or child is one of these options, provided that the sum assured is at least 10x the premium paid, exclusive of riders. This section applies to not just salaried but all income tax assesses. HUFs too can claim them.

2.Section 80CCC : Included within the overall limits of Rs 1.5 lakhs above, is an upper limit of investment of Rs1 lac per year into notified pension products. Life insurance companies offer various annuities and deferred annuity plans that qualify for this tax deduction.

3.Section 80D:A person under 60 can claim a deduction upto Rs25,000/- per year for medical insurance premiums for self and family. Above 60,the deduction allowed is Rs30,000/-pa. Additionally Rs5000/- pa deduction for preventive health check-up of senior citizens is available. Insurance companies offer various health and medical insurance plans and riders, the premiums for which are eligible for deduction under this section.

Tax-savings is always good as it allows you to retain and deploy your capital to earn more money. To learn more about   But the tax advantages of products from insurance companies often go way beyond just simple one time tax savings at the point of investment. Not just death benefits , but also maturity proceeds of life insurance products are tax free as per Section 10(10)D. Moreover various ULIPs offer you the option to switch your funds between various asset classes and change investment strategies depending on market conditions, without creating taxable incidents, unlike if you were to switch mutual funds. Hence the reason many wealthy people opt for products from insurance companies even when they have crossed the Rs1.5 lakh 80C deduction limit: Some of them are great tax advantaged financial assets that can be used in various ways as per the changing conditions in one’s life.

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About Keerthika Singaravel
Engineer,Investor,Businessperson

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