Know the Tax benefits on Life Insurance & Health Insurance Premiums

Most financial planners will ask you to cover the risks before starting to invest a single penny.

- Manish Jain

This is true because in the absence of protection, your assets and existing investments will be jeopardized. Therefore, getting a health insurance for self, family and a life insurance on the life of the bread earner in the family is extremely important. Having both health and life protection is extremely essential. Let us look at how these two risks covers work and how one can also benefit in terms of tax savings.

Life Insurance

The premium that you pay towards a life insurance policy is also eligible for a tax deduction up to Rs 1,50,000 under Section 80C. If the premium paid in any of the years during the term of the policy is more than 10 per cent of the sum assured, then deduction will be allowed only for premiums upto 10 per cent of the sum assured. This applies to all term, endowment or unit-linked plans policies bought from any of the private life insurance companies and LIC as well.

The money from a life insurance policy is most useful in replacing the income that will be lost on your death. This will protect the standard of living of dependents like wife and young children. One way by which this can happen is by helping your dependents pay off your financial obligations like unpaid bills like those for medical expenses, credit card debt and housing loans. Without life insurance, your other assets will have to be liquidated to honour your financial obligations.

Another use of life insurance can be to provide liquidity to heirs of your estate. Life insurance policies with correctly designated beneficiaries, backed by a will can make the distribution of your estate much smoother.

Last but not the least, many people like to earmark life insurance policies for life goals like children’s education and retirement.