Are You Buying Insurance To Save Tax?

There is a general misconception that buying insurance is an effective way to save tax. While insurance premiums are of course eligible for tax deduction, they are in no way instruments for tax savings. Rather, the objective of buying insurance has to be very clear – availing of financial protection during times of emergency

In this era of rising inflation, financial planning plays a very crucial role. Just as you are required to eat healthy to remain physically fit, similarly you need to have an adequate financial plan for being financially fit. Typically, in a very traditional way there are four basic needs of an individual to survive, namely, food, clothing, shelter and education. However, ideally there should be five basic needs of an individual which should also comprise planning of finances as none of the conventional basic needs can be fulfilled without basic financial planning. Financial planning is a mix of investment planning, insurance planning, retirement planning and tax planning – each equally important. Generally, insurance planning is clubbed with tax planning – a very common mistake!

Risk Management or Tax Savings

What is the main purpose of insurance: protection against risk or tax-saving? The answer is to provide protection against risk. However, many individuals look at insurance as a tax-saving instrument. Nevertheless, the core objective of insurance is protection against a particular risk and not tax-saving. An individual gets tax benefits by investing in life insurance policies, health insurance policies and pension plans. But the main objective of a life insurance policy is to financially protect the dependents of the insured person. On the same lines, a health insurance policy protects an individual financially in the world of rising healthcare costs.