Are you considering effective tax-saving investments for your portfolio? If the answer is yes, you should probably buy life insurance and health insurance simultaneously. They make for a great tax-saving combination. Why is this so? Total income from all sources is referred to as the Gross Total Income of the individual. For calculating the taxable income, there are applicable deductions from the same as per Chapter VI A (Sections 80C to 80U). This is where life and health insurance can play a massive role in reducing your tax liabilities. Read on to find out more in this article.
Life Insurance And Its Tax Advantages
While you can calculate the premium payable for a certain amount in life coverage online (through a life insurance premium calculator), this amount gets you sizable tax deductions yearly. How so?
The premiums you pay toward your life insurance policy are tax-deductible under Section 80C, with a maximum deduction limit of Rs. 1.5 lakh. Note that this limit cumulatively applies to all investments that are tax-deductible under this section, including NSC, PPF, SCSS, and more. Therefore, the premium you pay for a term insurance policy, life insurance policy, or even a ULIP will be eligible for this tax deduction from your gross taxable income.
For non-term insurance policies, your premium should not surpass 10% of the sum assured if the policy has been issued after April 1, 2012. If it has been issued before this date, then the premium should not surpass 20% of the sum assured. Ensuring this means that you get the tax deduction that is promised under the section.
Under Section 80CCC, there are deductions up to Rs. 1.5 lakh, subject to section 80CCE. Those paying or depositing money into any specified pension fund offered by a life insurance company. However, note that Section 80C deductions cannot be claimed if you take the deduction under this section.
Life insurance policies not only give you deductions but also exemptions on your maturity payouts or benefits (for non-term policies). In addition, section 10 (10D) also grants exemptions on life insurance benefits and death benefits paid by insurers upon the policyholder’s demise within the policy period.
However, the surrender value of any single-premium life insurance policy is tax-free (with the exception of pension plans) only if the policy is surrendered after completing two policy years. Those with regular premium policies should pay premiums for at least two years to get tax exemptions on the surrender value. Surrendering a ULIP after five years is the only way to ensure tax-exempted surrender values. Pension plans have taxable surrender values. Except for term insurance plans, other plans will not give you the tax exemption benefit under Section 10 (10D) if the premium surpasses 10% or 20% of the sum assured in a financial year.
With that, you can see how life insurance offers great tax deductions and exemptions alike. Now let us see how health insurance is also beneficial.
Health Insurance and Its Tax Benefits
Having health insurance in your portfolio is always a good move, considering that premium payments for health insurance in a financial year are eligible for deductions under Section 80D. In addition, certain add-ons offered with life insurance policies, like Critical illness insurance, top-up health plans, and critical illness riders, also have eligibility for deductions under this section. This deduction is also available if you buy health insurance policies for your spouse, parents, and children, apart from yourself.
Here are the premium payments that have eligibility for deductions under this section:
- Health insurance premiums paid for the self, children, spouse, or dependent parents
- Expenditure for preventive health check-ups
- Costs of treating senior citizens (60 or higher) who do not have coverage under any health insurance policy
Here is a look at the deductions in this section: (note that NSC here means not senior citizens and SC means senior citizens)
| Maximum Deduction Limit | Maximum Deduction Limit | Maximum Deduction Limit | |
| Category | Self, spouse and dependent children are NSC and Parents are NSC | Self, spouse and dependent children are NSC and Parents are SC | Self, spouse and dependent children are SC and Parents are SC |
| Health insurance premium (including preventive health check-up threshold of Rs. 5000) of self, spouse and dependent children | ₹ 25,000 | ₹ 25,000 | ₹ 50,000 |
| Health insurance premium and preventive health check-up for Parents | ₹ 25000 | ₹ 50,000 | ₹ 50,000 |
| Health expenditure of self, spouse and dependent children | N/A | N/A | Covered within the overall limit |
| Medical expenditure for parents | Not applicable | Covered within the overall limit | Covered within the overall limit |
| Total Section 80D Limit | ₹ 50,000 | ₹ 75,000 | ₹ 1,00,000 |
As you can see, both life and health insurance combine to give you excellent tax benefits, particularly in terms of deductions and exemptions. If you just go for a life insurance policy, you can combine a critical illness rider or any other health insurance rider with your term insurance policy to get the tax benefits of both worlds.
