Investing in a term insurance plan online can be a smart financial decision for anyone who wants to ensure their family’s financial security in the event of their unexpected passing away. By purchasing a life insurance policy, you can rest assured that your loved ones will receive a lump sum payment as the death benefit from the policy in the event of your untimely demise.
It is important to note that the tax implications of a life insurance policy can also play a crucial role in your financial planning. The good news is that the Income Tax Act of 1961 provides tax benefits on the money received from a life insurance policy. This means that the nominee of the policyholder is not required to pay any taxes on the death benefit received from the policy.
By taking advantage of these life insurance tax benefits, you can ensure that your loved ones receive the maximum financial benefit from the life insurance policy you purchase. However, it is always advisable to seek the advice of a financial advisor or tax professional to ensure that you fully understand the tax implications of your life insurance policy and make informed decisions about your financial planning.
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In the event of life insurance, who are the beneficiaries?
Only when the insured passes away before the policy’s term has expired will the life insurance payment be paid. As a result, the policyholder cannot receive the money. For this reason, while purchasing a life insurance policy, the insured is required to give the insurance company the name of a nominee. After filing a claim, the benefits are given to this nominee.
You can set your loved ones as beneficiaries, or the court can do that for you.
A life insurance calculator is a tool you may use online to determine the amount of coverage required based on your needs.
Do those who receive life insurance have to pay taxes?
Anyone purchasing a term life insurance policy frequently wonders whether the beneficiaries will be responsible for paying taxes. Under the Income Tax Act of 1961, the term plan provides some incredible tax advantages. The recipients’ tax liability might be decreased through a variety of tax deductions. Sections 80C and 10 (10D) of the tax code provide life insurance tax benefits.
1. Section 80C Benefits
You are qualified to claim a tax deduction for the money you spend on your insurance policy’s premiums under Section 80C of the Income Tax Act of 1961. The maximum tax advantage is 1.5 lakh INR. Both individuals and members of the Hindu Undivided Family (HUF) are eligible to receive the benefits.
The maximum tax advantage is 10% of the sum assured if the premium value is over 10% of the sum assured. This has been in effect since April 1, 2012. Before that, the upper limit was 20% of the amount assured.
2. Section 10 Benefits (10D)
Section 10 (10D) of the Income Tax Act of 1961 provides an additional tax benefit to the policyholder’s nominee by exempting the death benefit received from a life insurance policy from income tax. This means that the entire sum assured under the policy is tax-free, and the nominee is not required to pay any taxes on it.
Furthermore, the tax benefits of a life insurance policy are not limited to the death benefit alone. Tax deductions can also be claimed on the premium paid towards the policy under Section 80C of the Income Tax Act of 1961. This provides an added incentive for policyholders to purchase life insurance policies and ensure the financial security of their loved ones.
It is worth noting that the tax benefits under Section 10 (10D) have no upper limit. This means that regardless of the sum assured or the amount of premium paid, the policyholder’s nominee will be eligible to receive the full death benefit tax-free. This can be a significant advantage for policyholders who opt for higher sum-assured policies and want to provide maximum financial security to their loved ones.
The nominee of a life insurance policy is not liable to pay any taxes on the death benefit received from the policy. This is because the death benefit is considered to be a sum received as an outcome of a life insurance policy, which is exempt from income tax as per the Income Tax Act of 1961.
Life insurance policies offer several tax benefits to policyholders, including tax deductions on the premium paid and tax exemption on the death benefit received by the nominee under Section 10 (10D) of the Income Tax Act of 1961.
A life insurance calculator is an easy-to-use tool to check the amount of premium you would have to pay.