When one buys a term plan online, they are investing in their family’s financial well-being and the future. If the policyholder passes away before the life insurance plan reaches maturity, the lump sum payout can be given to the policyholder’s nominee. When one purchases this, one likely wants to ensure their loved ones have the highest financial protection possible. Because of this, a life insurance policy is a practical financial instrument one may use to secure their family’s future.
When purchasing a term insurance policy, you must do your due diligence. Many online sites let you compare the various policies available today. Carefully go through the clauses and all the features for each policy. You can even calculate the premium you will pay using the term insurance calculator.
Doing this homework before will help your family in the long run and protect your family’s future in the event of your passing. A term insurance plan is the safety net you provide so your family can carry on, especially if you are the sole breadwinner. Suppose you have been curious about whether or not the beneficiaries of a life insurance policy are required to pay taxes. In that case, you will be relieved to learn that the Income Tax Act of 1961 allows tax benefits to be applied to the money received from a life insurance policy.
Who would receive the money if someone passed away and they had life insurance?
Only if the policyholder passes away before the term of the policy has been exhausted will the term plans payout (death benefit) be paid out. As a result, the policyholder will not receive anything from it. The buyer of a life insurance policy must furnish the insurance company with the name of a nominee to complete the policy purchase. The benefits are paid out to this nominee once a claim has been submitted.
You are free to choose the members of your family or friends to serve as beneficiaries, or the court can do it for you.
Do those who benefit from a life insurance policy have to pay taxes?
The question of whether or not the beneficiaries of a term life insurance policy are required to make tax payments is one that policy purchasers frequently ask. According to the Income Tax Act of 1961, the term plan has incredible term insurance tax benefits. Numerous tax deductions help minimise the amount of taxes the recipients are responsible for paying. The tax breaks are available through Sections 80C and Section 10, respectively (10D).
1. Benefit according to article 80C
You are eligible for a tax deduction on the amount of money you pay towards your insurance policy each year as a premium, thanks to Section 80C of the Income Tax Act of 1961. The maximum allowable tax benefit is 1,50,000 Indian Rupees. Anyone, in addition to members of Hindu Undivided Families (HUF), is eligible to receive these benefits.
The maximum limit of the term insurance tax benefits will be 10% of the sum promised if the value of the premium exceeds 10% of the total assured. Since the first of April in 2012, this has been in effect. Prior to that, the maximum limit was equivalent to 20% of the total assured.
2. Benefit according to Section 10 (10D)
In addition to the tax reduction that can be claimed on the premium, the tax benefits that can be claimed under Section 10 are received as the death benefit (10D). According to this part of the policy, the policyholder’s nominee is eligible to receive the full amount of the sum assured without having to pay any taxes on it. Under Section 10, the tax exemption is not subject to any upper limit whatsoever (10D).
When purchasing term insurance over the internet, you should study the terms and conditions that are specified in the policy document attentively so that you have an understanding of the tax deductions. If you have a more in-depth understanding of the benefits, you will be more equipped to plan and achieve your financial goals. You should also check the premiums using the term insurance calculator. It can help you make a wiser financial choice.
We hope this article has cleared the questions you may be having regarding beneficiaries paying taxes on life insurance. With this knowledge on your side, you can choose the right term life insurance to help your family in their time of need. Remember, it is always better to do the research first and ask all the relevant questions before you buy a term plan.
There are 2 tax regimes in India – new and old. Choose the correct one after consulting an expert to get the tax benefit you desire. You can opt for a regime change during the next financial year.
All savings are provided by the insurer as per the IRDAI-approved insurance plan. Standard T&C apply