How to get income tax benefits from insurance cover

Insurance is a contract cover between an individual and an insurance company, where the company agrees to provide compensation to the insuree for specific financial loss. For the financial protection promised to the individual, the insurance company takes an agreed sum of money, known as premiums for a period. However, there are various kinds of insurance like life insurance, health insurance, motor insurance, property insurance, business insurance, etc. Apart from financial protection insurance provides, one can also claim tax benefits on the premiums paid.

Tax Benefits Associated from insurance cover:

-Life Insurance

Life insurance policy promises to pay an assured sum of money to the nominee(s) in case an individual dies during the policy period. Tax deductions on life insurance can be claimed for premiums paid toward insuring self, spouse, dependent children and any member of Hindu Undivided Family. 

Sections in which tax deductions are allowed:

1. In Section 80C: Premiums paid on a life insurance policy is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction that can be claimed is Rs. 1,50,000. 

3. In Section 80CCC: Under this section, tax deduction can be claimed for the amount paid towards an annuity plan of Life Insurance Corporation (LIC) or other insurance companies for receiving a pension. The maximum deduction that can be claimed under this section is capped at Rs. 1,50,000.

4. In section 10(10D): This section saves one from paying taxes on the amount received from the life insurance provider. the amount of sum assured and bonus (if any) received on maturity of policy or on the death of the life assured are completely tax-free (subject to agreed conditions in the contract).

-Health Insurance

The insurance company covers the cost of medical and surgical expenses of an individual under certain conditions as per contract.

Section in which tax deductions are allowed:-

1. Section 80D: For self and family the deduction of Rs. 25,000 can be claimed. For self and family + Parents Rs. 50,000 (Rs. 25,000 + Rs. 25,000) can be claimed. In case of a self and family + Parents who are senior citizens, the deduction allowed is Rs. 75,000 (Rs. 25,000 + Rs. 50,000). However, for self (senior citizen) and family + Parents (senior citizens) Rs. 1,00,000 (Rs. 50,000 + Rs. 50,000) can be claimed under this section.

A tax deduction for Rs 5, 000 can be claimed for medical checkup expenses, if paid through a bank or any other mode (except cash) within the above limit.

Note: For the policies issued on or prior to March 31, 2012, annual premium up to a maximum of 20% of the sum assured becomes tax deductible. For insurance policies issued on or after April 1, 2012, annual premium up to a maximum of 10% of the sum assured is tax deductible.