Maximizing Your Tax Savings with Term Insurance Riders

Once you choose to buy term insurance, you will also get an option to purchase relevant riders that can accentuate the policy and enhance overall coverage. Term insurance riders are additional coverage options that can be added to the base term insurance plan to provide additional benefits or protection. These riders can be added at the time of purchase or added later on, and they typically come with an additional cost. But did you know some of these riders can give you higher tax savings?

Yes, if chosen wisely, some riders may help you save significantly on taxes. But, at the same time, a thorough understanding of existing term insurance tax benefits is essential in this context. This is because you should first know how much you gain in terms of benefits before coming to the add-ons.

Tax benefits offered by term insurance plans

Term insurance policies come with several tax benefits for policyholders. The two most significant benefits are listed below:

  • Section 80C- The premiums paid by the policyholder for term insurance policies can be deducted from their annual incomes up to Rs. 1,50,000 under Section 80C. This naturally enables higher tax savings since the policyholder’s liabilities reduce with a decrease in taxable income.
  • Section 10(10D)- Section 10(10D) of the 1961 Income Tax Act offers exemptions on the sum assured paid out to nominees or beneficiaries by the insurance company in case of the policyholder’s demise within the policy tenure. The nominees will not have to pay taxes on the amount that they receive in this case.

While these are the primary tax benefits available for term insurance policyholders, some additional tax benefits are offered by term insurance riders as well. So let us take a closer look at the same.

Tax benefits with term insurance riders

Various kinds of term insurance riders are available these days. Popular options include accidental death and disability, a waiver of premium rider, income benefit, and critical illness coverage. The last option is what will help you maximize your tax benefits.

Health riders offer tax deductions under Section 80D of the Income Tax Act. If you choose a critical illness rider and pay an additional premium for the same, it will be tax deductible under this section. You can get deductions up to Rs. 25,000 annually if you are not a senior citizen. If you are a senior citizen, this will increase to Rs. 50,000 annually. You will find the details of separate premium components that qualify under Sections 80C and 80D of the Income Tax Act in the premium paid statement.

Now that you have a clear idea of the tax benefits you can get with term insurance riders, you should also keep a few things in mind while purchasing term insurance. This will ensure that you choose the best possible policy for your needs without any compromises or wrong decisions.

Buying Term Insurance- What to Remember

If you’re looking to buy term insurance, there are several steps you can take to ensure you get the best coverage at the most affordable price. You should also use a term insurance premium calculator to work out the premium payable for your desired coverage amount.

Here are some other things that you should remember:

  1. Determine how much coverage you need: The first step in buying term insurance is determining how much coverage you need. Consider factors such as your income, outstanding debts, and the number of dependents you have.
  2. Compare policies: Compare rates from different insurance companies to ensure you get the best coverage price. You can use online comparison tools to find the best options for your needs.
  3. Consider riders: Riders are additional coverage options to add to your base term insurance policy, as mentioned. Make sure you understand each rider’s cost and benefits before deciding.
  4. Review the policy details: Before purchasing a policy, review the policy details to ensure you understand the terms and conditions of coverage. For example, ensure you know the policy term’s length, the sum assured, and any other limitations or exclusions.

It’s always a good idea to take expert advice while purchasing a term insurance policy to determine the right coverage and riders alike. To conclude, it can be said that you can always scale up your tax benefits by adding suitable riders to the policy. At the same time, riders also help you expand your coverage benefits while financially safeguarding your family from many more unforeseen scenarios. Therefore, they are worth considering when buying a term insurance plan.

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