How to make the most of the tax benefits by investing in insurance products

The end of the financial year is fast approaching, so now is a good time to take stock of your financial decisions so far. It’s always good to start early on your annual investment portfolio, especially when it comes to tax savings. However, in case you have not yet settled your investment decisions, this window is the perfect opportunity for you to do so.

Typically, investors target wealth creation by investing in products that generate good returns and help maximize their savings. Before the end of the financial year, investors want to get the best of both. A simple way to do this is to invest in insurance and investment products. These products not only guarantee investment gains and tax refunds, but also provide a safety net in the event of an unfortunate event. So here’s a quick guide to helping you achieve your financial goals through tax savings.

Economy under Section 80C and 10(10)D

Let’s start first by exploring the savings options under Sections 80 C and 10 (10) D and the products listed there. Here we have these three options – term life insurance, unit linked insurance plans and guaranteed return plans.

The term insurance, as it is widely known, is the simplest and purest form of insurance. This not only helps you gain tax benefits, but also protects the future of your dependents. This is becoming particularly important amid the Covid outbreak. You can get tax exemption up to Rs 1.5 lakh under Sections 80 C and 10 (10) D here. You can save this amount by purchasing a policy for yourself, your parents, your spouse or your children.

The second option is ULIP or Unit Linked Insurance Plan. This is considered one of the best options for generating tax-free earnings. Here, you not only get tax advantages, but you also enjoy the flexibility of selecting a policy term between 5 and 30 years. Even if you leave the policy after 5 years or after maturity, you will walk away with tax-free fund value in hand. Moreover, you can decide to switch between debt and equity according to your preference. Most importantly, the investment is tax exempt for an annual premium of up to Rs 2.5 lakh under Section 10 (10) D, which means you should consider at least Rs 2.5 lakh investment in this plan. Needless to say, the life insurance component here definitely makes it a wise investment avenue.

The next option for you here is the guaranteed return plan. A popular choice among risk-averse investors, these plans allow you to lock in your money for a long time while promising better returns. This gives the investor a sense of financial security and also offers tax advantages. They offer both types of investment options – an income plan or a flat benefit plan. While the former provides you with recurring income, the latter pays you a lump sum. Both of these offer a life insurance element that helps the investor create an inheritance and save tax under Section 10 (10) D. They also offer a better interest rate than FD, making it an attractive option.

Benefits under Section 80D

This section helps the investor save tax by investing in health insurance. After the pandemic, the importance of health insurance took center stage. In addition to tax benefits, people have also started to see health insurance as a key instrument to control their medical expenses. Health insurance provides tax exemption to the policyholder under Section 80D of the Income Tax Act 1961. Under this, one is allowed to claim a tax deduction of up to Rs 25,000 per fiscal year for oneself, spouse and dependent children. The medical insurance premium paid for the parents entitles them to an additional deduction of Rs 25,000 if they are not elderly. In case one or both of your parents are elderly, this limit rises to Rs 50,000. Indeed, one can obtain up to Rs 75,000 in tax deductions on the purchase of a policy. health insurance for oneself and one’s parents.

With a checklist of what and how much to invest in which instrument, you’re equipped to make a financially informed decision for better tax benefits.

The author is CBO-GI at The opinions expressed are those of the author.