If you are young, single, with no dependants, you have all the time to think about tax planning and related investments that help do so. Banks and financial advisors might have already started approaching you with their tax saving ideas. Basically, you have ample opportunities to gear your investment portfolio on the right track.

As the tax season approaches, we go haywire trying to figure out how to save up excess tax, through different investment options. Such times are really tricky; they pose a challenge for us to find the right instrument for tax savings. Remember, tax planning is a critical financial consideration, but need not be the only focus of any investment portfolio.

Importance of Tax Planning

Tax planning is one of the most integral aspects of personal finance. It is imperative for the reason that it helps you cut down on the amount of payable taxes and increase your savings. There is no denying that these savings can be utilized further for financial security in the future. We are entering that time of the year when most individuals rush to explore different tax saving avenues for the year through multiple investment options.

Investing a portion of your total savings in some securities is an ideal method of tax planning that provides you with tax benefits. Out of which Life Insurance is the most effective and preferred avenues of all the investments.Let’s have a detailed look over Life Insurance as an important tax saving instrument.

Life Insurance Policy – An important Tax saving instrument

Life insurance policy should always be given preference, especially when you have dependents. Although you have multiple options available for saving taxes, life insurance is definitely one of the most effective.Where Life Insurance aims to provide financial protection to its beneficiaries, in case of unforeseen events, tax-savings follows like an icing on the cake. Many a times, investors neglect the basic objective behind this investment and end up purchasing a wrong policy. Therefore, you need to take care while choosing the policies, as not all are entitled for tax exemption.

How much life insurance you need largely depends on factors such as regular income, expenses, financial obligations, and future goals like education, marriage etc. You can opt for a pure life insurance for high life insurance coverage. Here the premium is very minimal which serves the purpose of section 80C. The tax benefit is the advantage that comes along with this policy.

You can also get Tax benefits on Health Insurance products. Both the policies in combination can help you save overall on the net tax liability.Click here to read more about the tax benefits from life insurance policies.

The Tax exemptions provided on Life Insurance Policies are

  • Under Section 80C of the Income Tax Act, 1961, premiums for all life insurance policies (and other sources like health insurance premiums, PPFs) are exempt from tax up to a maximum of Rs 1.50 lakh per annum.
  • The claims received by the beneficiaries are also tax free under Section 10 (10D) of the Income Tax Act.
  • In ULIPs- Investments of up to Rs 1.50 lakh is deductible
  • Section 80CCC of the Income Tax allows deduction of premiums paid towards pension scheme for up to Rs 1.50 lakh.

About HDFC Life

HDFC Life (www.hdfclife.com), one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.

(Article was first published on 03.12.2012 and republished with amendments)

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10 responses to “Life Insurance Policy as Tax Saving Instrument”

  1. CA Sandeep Kanoi says:

    hi

  2. nagaraj lic 9840047520 says:

    life cover is very important role in all family, so donot worry about returns, you plan 50 :50 method. nagaraj lic 9840047520, nagarajvlic@gmail.com

  3. Vasudev says:

    Mr. Balwant Jain is absolutely right about difference in investment and insurance.
    If the aim of buying any insurance is purely to avail tax benefits, then there are many better schemes that provide much better returns.

  4. CA Dinesh Vaidya says:

    Life insurance policy, without profit, of any insurance co. at any age is the best one.

  5. SREEJITH R says:

    YES , ALSO ONE MORE PROBLEM IS IF U SURRENDER A LIFE INSURANCE POLICY FOR ANY FINANCIAL SITUATION U R LIFE COVERAGE WILL STOP, SLSO U TAKE ANOTHER POLICY WITH NEW MORTALITY RATE PREMIUM

  6. R K Bhuwalka says:

    iN THIS ARTICLE ‘Life Insurance Policy as Tax Saving Instrument’, IN THE END IT IS MENTIONED THAT THE ARTICLE WAS FIRST PUBLISHED ON 03.12.2015; PLEASE NOTE THAT DECEMBER IS YET TO COME. PLEASE CORRECT. THANKS.

  7. yogesh pant says:

    Cool

  8. s sudarshana says:

    Mr Balwant Jain has made sweeping comments when he says ‘…very foolish thing…’. Financial management is to plan and optimise the returns and considering tax saving is also a factor. Even if one doesn’t have any dependants, one should have either a ‘pure’ insurance or an accident covering policy.

  9. RAJ KISHOR JHA says:

    I completely agree with Mr. Balwat Jain

  10. Balwant Jain says:

    Investment and insurance are oxymoron. As a prudent financial practice one should never mix insurance and investment. If you invest in life insurance, you land up getting none of the both adequately. Buying insurance for tax saving is a very foolish thing to do.
    Buy insurance only and only if you have any one dependent financially. Please do not buy any insurance just because it maximizes your tax benefits.
    Please segregate you insurance and investment. Buy pure on line term plans for insurance and invest in PPF or ELSS depending on your risk profile and investment horizon. The segregation of insurance and investment will ensure to optimize your insurance and returns on your investments.

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