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3 Life Insurance Policies That Serve As The Best Tax Saving Investments.

By Author: arnab Goswami
Total Articles: 2

Here are 3 life insurance policies that serve as the best tax saving investments.

Hard work, dedication and commitment - this is what your annual income represents and it really stings to see a large amount of it get washed away as taxes. Well there is good news, you can now save on the taxes you pay and also, in some instances, make your money grow. If you’re wondering how this could be possible, the answer is simple, through life insurance!

Yes, your life insurance also serves as a tax saving investment that will reduce the amount of tax you pay every year, thereby providing you financial security over unfortunate events whilst saving money that would otherwise be spent in paying taxes.

In general, almost every life insurance policy allows you some tax benefits. But the extent of tax savings and the laws under which these benefits fall varies from one insurance policy to the other. This article will give you a basic overview as to how much you stand to save with the various life insurance policies out there.

Endowment Plans:

Also known as traditional life insurance plans, these policies offer the insured person dual benefits of insurance cover within the tenure of the policy as well as guaranteed returns at the end of the policy. With an endowment plan, your premiums are invested to provide you returns; the insurance company will invest your funds as and how they see fit and provide you a guaranteed return on investment. Along with these benefits, the endowment plan also provide a third advantage, it triples up as an effective and best tax saving investment.

ULIPs:

ULIPs are fast becoming the life insurance policy of choice for many Indians. This is because they take endowment plans a step further by providing you flexibility and transparency in the fund investing process.

Under ULIPs you can choose to invest your funds in either equity or debt markets, you can decide the ratio of fund allocation between these markets. ULIPs also offer you transparency, wherein you know how much returns your funds are earning you and you are entitled to receive all of the returns too! What makes ULIPs all the more desirable is that they too act as one of the best tax saving investments.

Pension Plans:

Pension plans too are a type of life insurance, only their main objective is a little different. Normal plans offer you a death or maturity benefit while pension plans offer you a source of income post your retirement. There are two phases under pension plans, first is the accumulation phase, under this phase you collect money to build your corpus.

The second phase is the distribution phase, where one third of the collected corpus is given to you and the remaining two thirds are invested by the insurance company to provide you a steady source of income after you retire. In case of the insured person meet with an unfortunate event within the tenure of the policy, a pre-decided amount is provided to his or her beneficiaries as a death benefit. How do these policies serve as a tax saving instrument?

Yes, getting to the point, with endowment plans and ULIPs, the premiums you pay are eligible for deductions from your annual income under section 80C of the Income Tax Act, 1961. Under this section of the Income Tax Act, taxpayers are eligible to claim up to Rs 1.5 lakh per year. What’s more is that maturity benefit, death benefit and surrender value are also eligible for tax benefits under Section 10(10D) of the Income Tax Act.

The Pension Plan offers the same tax rebate; the only difference is that on maturity only one third of the sum assured is tax free, the other two third is taxable under the income tax slab. These sections of the Income Tax Act make life insurance policies a great tax saving instrument.

Life insurance policies are a great way to secure every step of your life. They also double up as a considerable tax saving instrument. If you’re thinking of going in for life insurance for its tax saving benefits, you should discuss the provision stated in the Income Tax Act with an expert to see just how much you are eligible to save.

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