Term insurance for you to save more on your taxes

    Choosing insurance has been the first preference of most Indians but most of them end up making bad choices. This has been closely observed amongst savers and investors. Consequently, they pay more and can't save on taxes.

Understanding Section 80C

The people mostly buy any insurance policy without giving a thought. This is because of the points shown positively to them by agents and then they try to save tax before the 31st March deadline under Section 80C. This Section allows you to deduct nearly 1.5 lakhs for taxation from your annual income. As people don't get much time, they buy insurance products that are unsuitable for them. If you have a clear knowledge of not just Section 80C but also of the various insurance policies, you take a wise decision and buy the most fruitful insurance policy for yourself.

How to choose an insurance policy wisely?

There is a big variety of insurance products available in the market. You may find it difficult to choose an insurance policy all by yourself to save on taxes. A term plan is the one you need while picking the life insurance policy. One has to be aware that saving on taxes should not be the prime consideration while choosing a policy. You also have to consider how much you need to buy one. You can buy one without thinking about the exemption limit under Section 80C to avail or not; if you have dependents.

What to look for in your term plan?

Your term plan should provide a life cover that is 10 times that of your annual income. Take this example. If you have financial dependents with an annual income of Rs 10 lakh then your term plan should be the one with a cover of Rs 1 crore. You don't need to be worried about the amount of your life cover. You can get very cheap term plans. A life cover of Rs 1 crore would cost Rs 12,000 per year for a 35-year-old male. This means it costs you around just Rs 1,000 per month. Under Section 80C of the income-tax act, the premium that you are paying for term life insurance policy can be easily claimed as a deduction.

Knowing about riders

 When you buy a term plan, it may prove to be worthwhile to sift through the riders that are available and you may also add one that you feel worthy. Riders help you to get some additional tax advantage along with adding benefits to your basic life policy. They can be added to basic life cover at the most nominal cost and act as additional benefits. Some riders available with term plans are given as under:

• Accidental death benefit- This is the most common rider. Under this, if the policyholder dies due to an accident during the policy term then an additional amount will be paid to the nominee which may be less or equal to the sum assured.
• Disability income- It guarantees a specific time; a monthly income from the insurance company, if in case, the policyholder becomes disabled because of an accident.
• Waiver of premium- It overrides the insured's need to make the payment of the particular premium if in case he/she becomes disabled permanently or faces an income loss due to an accident or any illness. Premium is waived off then.
• Critical illness benefit- Under it, the insurance company pays some amount when a dreadful disease is diagnosed that can even be fatal. There's a list of illnesses under the rider for each insurance company. During the term of the policy, if the policyholder is diagnosed with any of these diseases then the insurance company pays an amount equal to assured sum irrespective of what the treatment cost is.

For all these riders, the additional premium paid can help you save on taxes. A premium paid for any of the life-related riders is eligible to be deducted under Section 80C but the premium for health-related rider comes under the purview of Section 80D. This Section provides an additional deduction of nearly Rs 25,000 for the young and up to Rs 50,000 for the senior citizens; for the premium, they paid to buy a health insurance policy. If you buy a health insurance policy for parents then an additional deduction of the same amount is available for you.

A rider should not be bought just for the sake of having one or because it was available at a very low cost. Multiple riders escalate the total premium that can punch your pockets, even though all are cheap. Just ensure whether you need the extra cover or not. While choosing the riders, take the decisions wisely. It is apt to buy an accidental death benefit rider if your occupation makes you travel more.