Life Insurance: Tax benefits are the icing
Jul 20, 2002

Author: PersonalFN Content & Research Team

Insurance is a very important part of financial planning. It not only provides you and your family with a comforting sense of security but some plans like the term assurance plans can be easy on your pocket too. Of course the tax benefits are the icing on the cake.

As income tax laws have been revised in the latest Union Budget (2002-03) the tax benefits have undergone some change:

Income per annum	Tax Rebate
Less than Rs 100,000	30%
Between Rs 100,000 to 150,000	20%
Between Rs 150,000 to 500,000	15%
Above Rs 500,000	NIL

As per the revised budgetary recommendations, the assessor can invest up to Rs 100,000, of which Rs 30,000 is to be invested in Infrastructure Bonds and the balance Rs 70,000 in instruments approved by Income tax Act (insurance, tax saving mutual funds, NSC/PPF)

Tax benefits for life insurance

Section under the Income Tax Act	Particulars
Section 88	0%, 15%, 20% of premium paid depending on the tax bracket you fall
Section 80D	Medical benefit-premium up to Rs 10,000 deductible from taxable income
Section 80 CCC	Pension benefit-premium up to Rs 10,000 deductible from taxable income
Section 10 (10D)	The amount received from Insurance company in form of claim or maturity benefit along with bonus is entirely tax free

Life Insurance (along with PPF) is unique as it provides investors with a dual tax benefit. So when one pays the insurance premium he is eligible for tax benefit (under Section 88) and also at the time of maturity or claim (under Section 10(10D)). As per 10(10D) proceeds on maturity/claim, are completely tax-free. This tax benefit also extends to riders like Double Sum Assured, Accidental Death Benefit.

Some medical riders like Critical Illness also attracts tax benefits like Section 80D where an amount up to Rs 10,000 invested with an insurance company for medical insurance, gets deducted from the taxable income.

Life Insurance is worth a look for the security it instills in the life insured and his/her family members. But at the same time, what makes it even more attractive vis-à-vis comparable instruments are the significant tax benefits that it provides.

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