How Does It Help In Saving Tax?

We give you some insurance news today that will make any person sit up and take notice. We all know that policies like Term life insurance cost a person just a few thousand bucks, but the return can be more than tenfold if something happens to the insured person. This massive return can be used for endless possibilities ranging from a child’s education to paying debts to create a financial net for the family. But, few people know that insurance can be a virtual tax haven. One can save a considerable amount in tax by using life insurance or health insurance.

Let’s take an example to make it easier for the average Joe to understand how insurance saves tax. Assume that you buy a life insurance policy. You pay a premium for it every month or so. This premium is deducted from the income of the person while calculating the tax. Thus, your income is reduced when seen from the point of view of the taxman. When your income is lower, the tax is lower too. Therefore, having a life insurance saves you money.

The total amount that can be deducted varies from country to country. In India, the total is one Lakh fifty thousand rupees. So, if a person has Rs. 1.5 Lakh insurance they can save up to Rs. 45,000 in tax. We know that understanding the concept of taxes is hard; after all, even Albert Einstein found them complex. Yet, saving tax through insurance is one the easiest to comprehend. This was just one method of saving money through insurance. If you pay the insurance for non-earning members of the family, then that is tax deductible too.

The logic behind this process is that not everyone buys their own insurance. Parents purchase insurance for their children or elderly parent. A person can also purchase insurance for their non-working spouse. All these premiums that you end paying can be claimed as tax deductions. Again it is not just life insurance that can be claimed, but also health insurance. An example of the insurance premium paid for an entire family would be:

– Life insurance

  • For self: $300
  • For spouse: $250
  • For the child: $100
  • For elderly parents: $500

– Health insurance

  • For a family of three: $400
  • For dependent parents: $600

These were methods of saving money from insurance but a person can indirectly make money from it too. There are times when you receive payments from insurance.  These can be the sum assured or a bonus. Both these amounts are exempt from tax. It doesn’t matter when these amounts are paid. It can be done on maturity of the policy or on surrender or with a death claim. These payments do not accrue a tax.

Ensuring a life safety net and proper health care has its advantages, we all are aware of them. Saving on taxes is just an added benefit that makes insurance even more lucrative. The end line is that one should invest in insurance to build a safeguard against unexpected circumstances and to save up on the tax that needs to be paid every year.

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