Tax-saving or tax-planning is an important part of financial planning. If wisely done, it can serve a dual objective – help individuals meet their financial goals and save tax in the process.
Broadly, these are the three insurance avenues that can help maximize tax-savings:
1) Life Insurance
Life insurance is a critical part of any individual’s financial portfolio. It offers financial cover to the individual’s family in his absence. For this reason the breadwinner must aim to take life insurance at the earliest for the family’s security.
Life insurance products came in various forms with endowment plans, term plans, whole life plans, money back plans and unit-linked plans or ULIPs being the most important.
From a tax saving perspective all insurance plans are ‘equal’ before the law. So regardless of the life insurance plan, tax-saving is assured. The premiums paid on these policies help avail tax deduction and hence they are some of the important tax saving plans that one must be sure to consider.
2) Pension plans
Pension plans or annuity plans are another form of life insurance with a different end-objective. While life insurance is geared to protect the individual’s family on his death, pension is designed to provide for the individual and his family if he lives on.
Two phases punctuate the pension process – accumulation and withdrawal. In the accumulation phase the individual sets aside money in his earning years. Retirement kicks in the withdrawal phase.
Tax benefits are applicable only in the accumulation phase.
3) Health insurance or Mediclaim
Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured.
Health insurance offers tax benefits to individuals. Insurance premium up to Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit, thus proving to be an efficient tax saving investment. If an individual pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, who is a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000)
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* Tax benefits are subject to changes in Tax laws