Buy life insurance policy for protection against unforeseen events

The purpose of a life insurance policy is to set aside funds for future expenses or provide financial protection against the death of the policyholder. However, most taxpayers buy a life insurance policy to save tax. The guiding factors for the purchase of a life insurance policy must be financial protection and risk-free investment.

Life insurance is a risk-free investment with benefits of bonus accruals. A term insurance policy can help accumulate a corpus for future needs such as children’s education, marriage or any other future requirement. The term policy also offers financial protection in the untimely death of the policyholder. A lump sum amount will be available to the family in the event of the death of the policyholder.

Also Read: Union Budget 2020: Not All Deductions Are Disallowed in New Tax Regime

From a tax savings perspective, the premiums paid towards life insurance are allowed as tax deductions up to a limit of Rs 1.5 lakh. A maximum of Rs 46,800 is available in tax savings at a peak rate of 30% (applicable to taxpayers in the tax bracket above Rs 10 lakh). The maturity amount received is tax-exempt subject to certain conditions. The tax benefits make buying life insurance more lucrative.

Budget 2020 has introduced an optional new tax regime. A taxpayer choosing the new tax regime cannot claim tax deductions for life insurance premium paid. However, the maturity amount received continues to be tax-exempt. Thus, even in the absence of tax deduction for premiums, a taxpayer can choose to invest in life insurance for the benefits of financial protection and tax-exemption of maturity proceeds. 

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

You May Also Like

EPFO lowers the interest rate on PF deposits to 8.5% for FY 2019-20

The Employees’ Provident Fund Organisation (EPFO) has notified the interest rate for…

Pensioners Who Opted for Commutation To Receive Higher Pension

According to a notification sent by the labour ministry dated 20 February…

Income Tax Not Applicable on Disability Pension for Defense Personnel

The Ministry of Defence has instructed its accounts department to withdraw the…

Here’s What You Should Know About Overdraft Facility

The overdraft facility can be considered as a kind of a loan.…