Life Insurance: an apt tax saving tool for women too

17th December 2015
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In 2015, women are much ahead of just being homemakers! Be it any profession, they often become the frontrunners and win the race much like their male counterparts. Contrary to the popular notion, they earn hefty salaries; they run their families hand in hand with the men.
Therefore, it is equally important for women to save tax  too alongside having a well-planned financial goal. Tax planning involves taking into consideration various factors such as the age of the assessee, total income earned and the financial goals of the assessee as an individual and from the perspective of her family. Most women start looking at tax saving avenues only in the January-March quarter of the financial year so as to submit the proof of investments to their employer by the end of that financial year. This is the time of the year when all financial advisors, banks or other financial intermediaries will also start approaching individuals with their tax saving ideas. However, it is prudent to consider and start investing early for tax-planning purposes. Today, there are numerous investment options available to woman investors which help save taxes.
Among other financial products, insurance should definitely be a crucial tax saving option for a woman investor to include in her financial portfolio. Women often do not consider insurance, both life and health, as priority. However, with rising medical costs and growing incidents of lifestyle related illnesses, it makes sense to invest in an insurance plan that covers such exigencies. Investing in insurance is not only quite hassle-free, but it also provides for projected living costs, education expenses and retirement benefits.

Under Section 80C of the Income Tax Act, individuals have been provided many tax reliefs such as tax free investments of up to Rs. 150,000. One of the tax saving  options under this category is life insurance. It is a known fact that a life insurance policy is the most cost effective tool to provide financial protection to a woman’s family in case of unforeseen eventualities. However, the quantum of life insurance depends upon many factors such as income, expenses, liabilities, goals etc. Term insurance may be a right instrument for lump sum life insurance cover, whereas ULIPs are the best option for steady and sustained investment with an investment goal of 10-15 years. Since, tax benefit is the inherent advantage which comes with this product, she should consider this option only after analyzing her needs. It is also important to know that for policies starting April 1, 2012 and later, Section 80C of the Act currently allows a deduction on premium paid on life insurance policy only if the annual premium paid is less than 10% of the sum assured.
In 2013, the limit of the annual premium was increased from 10% to 15% of the sum assured for persons with disability or severe disability or suffering from diseases or ailments specified in the Income Tax Act. Thus, for these people, if the annual premium paid was up to 15% of the sum assured, the same could be availed as a deduction below Rs 1.5 lakh tax limit under Section 80C.
Another important option is for premium paid for health insurance. Under Section 80D of the Income Tax Act, one can avail deduction of up to Rs 15,000 for self, spouse and dependent children, while an additional Rs 20,000 is available for parents above the age of 60 (who fall in the senior citizens category) on premium paid for a health insurance plan.
These limits can include expenses of up to Rs 5,000 on preventive health check-ups. This is especially beneficial to women over the age of 30 – who are advised to have routine health check-ups as a matter of routine in order to detect and prevent specific illnesses. Cash payments for health check-ups are eligible for income tax deduction but health insurance premiums paid in cash are not.
Notwithstanding the above mentioned advantages, a detailed analysis should be done on the requirement and benefits of insurance policies before buying the right scheme. And, this is true for any financial instrument. Finally, she should review her insurance cover from time to time and increase the coverage to meet her financial goals. While tax-saving is important; the primary goal must be protection.

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