How Can Life Insurance Policy be Used in Tax Planning?

Life insurance policy does not only provide financial protection, but it also helps in saving taxes. Here are some ways how life insurance can be used to save taxes.

Under section 10C, the claim can be asked by nominee free of tax if the policyholder meets with an accident that leads to his/her death.

The same benefit can be availed in a retirement or ULIP plan under section 80CCC. Therefore, the receivable amount, the invested amount, and the earning on that amount are all exempted from taxes.

Section 80CC provides a tax deduction of up to Rs.1 Lakh for an annuity or pension plan. A part of your income (2/3rd) is taxed while the remaining is exempted as the accumulated premium reaches maturity.

A life insurance policy that is bought after 1/4/2012 is eligible for tax exemption only if the premium amount is less than 10% of the receivable sum. If the policy is issued before the above date, the premium must be less than 20% of the receivable to be eligible for tax emption.

If the policyholder has been in possession of such a policy after 1/4/2013; he/she is eligible for 15% deduction of the receivable. This can happen only if the policyholder has purchased a policy due to suffering from an illness or disability listed in section 80DDB and section 80U respectively.

The claims or risk coverage of the policy along with its bonuses are tax-exempted under section 10 (10D).

These are some ways how a life insurance policy can be instrumental in tax planning.

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