Is life insurance a good tax saving option for you? Find out now and benefit

While investment schemes are a good way to to grow your money, there are some great options that also allow you to save tax. Among the top options are public provident fund (PPF), mutual funds, fixed deposits, etc. Apart from these, a good insurance plan can also help you attain your financial goal. It can also help you save tax. However, you should remember that, notably, while the primary purpose of the plan is to provide a life cover, tax benefits come merely as a bonus. 

Significantly, a good insurance plan becomes more important as the cost of medical treatment is rising with each passing day. In fact, an insurance report published by the Insurance Regulatory and Development Authority (Irda) of India in 2011 stated that the average claim in case of major diseases was Rs 1,34,550 in 2009-10 compared to Rs 98,101 in 2007-08, a compounded annual growth rate of 17 per cent. Notably, the average claim paid in 2009-10 was just Rs 23,000.

How life insurance works?

In an insurance policy, you are liable to pay its premium. Thus premium qualifies for tax deduction under Section 80C. Tax deduction is applicable only to the policyholder on account of insurance premium paid for a particular financial year. The limit under Section 80C is Rs 1.5 lakh. 

The investor can also claim tax benefit for medical insurance policy under Section 80D as per Income Tax Act, 1961. The tax deductible is up to Rs 25,000, whereas if premium is paid for senior citizens then the tax deductible is Rs 30,000.

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But is it a good tax saving option?

So, you know that life insurance can be used for tax saving. But, is it a good option? Archit Gupta, Founder & CEO ClearTax believes that it isn't as the primary purpose of an insurance plan is to give life cover and tax saving should be seen as a value added service. 

"Tax-saving is not the priority of insurance. Getting adequate cover for you and your family is. If anything untoward happens, the insurance scheme can take care of your family’s financial future. Saving taxes is just an added bonus," he told Zee Business Online. 

"Nowadays, you can easily buy life insurance plans customized to suit your requirements," he added.