When it comes to investments, life insurance often does not feature on the top of most people’s priority list. This is largely because the financial benefits of life insurance and term insurance are often not immediate. After all, a life insurance cover is obtained to secure your future. So, it isn’t possible to experience the immediate financial benefits of such policies in the short run.

Aside from the protective cover they offer, insurance policies also come with other advantages. For instance, with life insurance tax benefits, you can claim the premium paid as a deduction from your total income. Single premium life insurance policies, in particular, come with many advantages. Here’s a quick look at the tax benefits of single premium life insurance plans.

1. Benefits under section 80C

   The general set of life insurance tax benefits extends to single premium life insurance plans as well. According to section 80C of the Income Tax Act, the premium paid on life insurance and term insurance policies can be claimed as a deduction from the total income. This way, by reducing the level of taxable income, your tax burden will also see a corresponding decrease.

   However, with other life insurance tax benefits, the deduction you can claim on premiums paid for a single premium life insurance plan is also subject to certain conditions and limitations, as explained here.

   Limit on the amount of deduction you can claim

   Under section 80C of the Income Tax Act, you can claim a maximum amount of Rs. 1.5 lakhs as a deduction from your total income. This means that if the premium you’ve paid for your single premium life insurance policy is Rs. 2 lakhs, your deduction claim will be limited to Rs. 1.5 lakhs. On the other hand, if your premium only comes up to Rs. 1.2 lakhs, you can claim the entire amount of the premium paid as a deduction under section 80C.

2. Exemption under section 10(10D)

   Life insurance tax benefits aren’t limited to the deduction of premium alone. The advantages extend well past this stage, right into the maturity phase. Typically, when the term of the insurance policy comes to an end, the policyholder is paid a lump sum amount (also known as the maturity value). Alternatively, if the insured passes away during the term of the policy, the sum assured (also known as the death benefit) is paid out to the nominees. Section 10(10D) provides that the maturity proceeds and the death benefits of the policy are tax-free.

   Exemption of maturity proceeds

   In order for the maturity value of the policy to be eligible for the exemption under section 10(10D) the amount of the premium you pay for your single premium life insurance plan should not be greater than 10% of the capital sum assured. In other words, the sum assured should at least be 10 times the single premium amount paid.

   For instance, if you’ve invested in a single premium plan that promises you a maturity value of Rs. 12 lakhs and charges you a one-time sum of Rs. 1 lakh as premium payment, the entire maturity amount Rs. 12 lakhs would be exempt from tax. On the other hand, if you had to pay a premium of Rs. 1.5 lakhs for the same maturity value, the maturity amount would be taxable according to your income tax slab rate, because it is less than 10 times the premium value.

   Exemption of death benefit

   The sum received by the nominee following the death of the insured is exempt from tax under section 10(10D). This exemption is unconditional, so not tax will be levied on the same.

Conclusion

Since life insurance policies offer exemption at the investment phase as well as the maturity phase, they’re one of the best investment options available under section 80C. Single premium life insurance policies also offer many other advantages. Firstly, you only have to pay one lump sum amount as premium. Secondly, the chances of you forgetting to pay a premium instalment is practically non-existent, since single premium life insurance plans require only a single payment. And yet, you get to enjoy all the benefits of regular life insurance and term insurance policies. Browse the website to know more about Life Insurance and the various Term Plans offered by PNB MetLife.

The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.