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Common misconceptions about the tax benefits of term insurance


 Understanding the tax benefits of term insurance can be confusing, leading to several misconceptions. These misunderstandings can prevent individuals from maximising the potential tax savings that term insurance policies offer. By debunking these myths, you can make more informed decisions about your financial planning and fully utilise the tax benefits of term insurance.


Misconception 1: Term insurance does not offer tax benefits.

One of the most common misconceptions is that term insurance does not provide any tax benefits. In reality, long-term insurance offers significant tax advantages. Under Section 80C of the Income Tax Act, premiums paid towards a term insurance policy are eligible for tax deductions up to ₹1.5 lakh annually. Additionally, the death benefit received by the beneficiaries is tax-free under Section 10 (10D), making term insurance a valuable tool for tax planning.


Misconception 2: Only high-premium policies qualify for tax benefits.

Another myth is that only high-premium term insurance policies are eligible for tax benefits. The truth is that term insurance policies, regardless of the premium amount, qualify for tax deductions under Section 80C. Whether you choose a basic policy or one with additional riders, you can still avail of the tax benefits of term insurance. The key is to ensure that the total premium payments do not exceed the ₹1.5 lakh limit under Section 80C.


Misconception 3: Tax benefits are only applicable to employed individuals.

Many believe that only salaried individuals can claim the tax benefits of term insurance. However, this is incorrect. Self-employed individuals and business owners can also take advantage of these tax benefits. The premiums paid towards a term insurance policy can be deducted from their taxable income, reducing their overall tax liability.


Misconception 4: Tax benefits are limited to the policyholder.

A prevalent misconception is that only the policyholder can claim tax benefits. In reality, if you pay the premiums for a term insurance policy for your spouse or children, you can still claim the tax deductions under Section 80C. This provision allows for greater flexibility and can be a strategic way to manage your family’s financial planning.


Misconception 5: There are no additional benefits beyond tax savings.

These policies, offered by providers such as Bajaj Finserv, not only ensure financial protection for the policyholder and their family but also offer a tax-efficient way to build a corpus for future needs. Understanding the tax benefits of an endowment policy can help individuals make informed decisions that align with their long-term financial goals and tax planning strategies.


Conclusion

Clearing up these misconceptions about the tax benefits of term insurance can help you make more informed financial decisions. Term insurance not only offers substantial tax savings under Sections 80C and 10 (10D) but also provides crucial financial protection for your family. Whether you are a salaried employee, self-employed, or a business owner, understanding and utilising these tax benefits can enhance your financial planning strategy. Remember, term insurance is not just about saving taxes; it’s about ensuring your loved ones are financially secure even in your absence. By debunking these myths, you can better appreciate the value and benefits of term insurance, making it an integral part of your financial portfolio.


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