Avoid buying life insurance just to save income tax

Tax exemptions are only benefits given to encourage people to buy life insurance in the absence of a comprehensive social security system.

The productivity of insurance salespersons during the last quarter of the financial year is so high. However, this credence to the belief that life insurance is sold for saving personal tax only. It is relatively true that during the last six months most people focus on sale and purchase of life insurance for such benefits. There is definitely a large group of people who would like to minimize tax liability by paying a life insurance premium in the relevant year.

What is term insurance?

Term insurance covers an individual for a limited number of years. In case of death of the life insured, a pre-determined sum assured is paid out to the nominee. In case the life assured survives the term, there is no refund.

Insurance and tax benefit

Area 80C of the Income Tax Act, 1961 accommodates deduction from pay on premium paid to purchase and keep in-compel the life coverage strategy on the life of self, mate and youngsters. Under this area, the most extreme admissible deduction is up to Rs 1.5 lakh. In any case, the ceiling is comprehensive of speculations made in conceded annuity approaches and commitments to provident fund, investment in ELSS of the shared assets. This incorporates premium paid under gathering funds connected protection plans.

The main cause of buying insurance should be the value of human life which would require to be replaced through the policy in case the insured dies in his earning period.

Terminating a policy

Policyholders can't pull off the deductions from assessable pay on the off chance that they terminate a policy in the following couple of years for which deductions have just been claimed. In case of insurance policy taken through single premium mode, don't surrender the policy before consummation of two years from the date of the first premium got. For ULIPs, least maintenance period is five years and for other people, the least period is two years.