To lead a planned life is like winning half the battle. Most things in life can be achieved with great planning supported by excellent execution. Like one plan for their life, they also need to be prepared for contingencies. Emergencies can take the form of a medical situation and being ready with adequate resources becomes critical. That’s where two essential insurance covers come into the picture — life and health insurance.
Life insurance acts like a safety net for the family when the insured individual is not around, whereas health insurance supports the insured to seek timely medical treatment without worrying about financial resources. Did you know both these plans offer benefits in your income tax return? Just like there is a stark difference between the coverage of these two insurance plans, there is also a distinction between the tax benefits offered by these two policies. Here’s how the tax deduction for both these plans differ:
The Income Tax Act of 1961 specifies different deductions for the premiums paid for both insurance plans. While a life insurance premium is deductible under section 80C, premiums paid for a health insurance
policy is deductible under section 80D of the Act. So, if you have both insurance covers, the tax benefits will be available under different sections in your income tax return. Also, you must remember that the amount of premium paid for these insurance plans does not lower the tax amount, but the final amount on which tax is computed.
Premium deductions for life insurance plans
According to section 80C, the premium paid is deductible from your net tax liability only when the following conditions are fulfilled:
- The taxpayer claiming a deduction is either an individual or member of Hindu Undivided Family (HUF).
- The maximum amount of deduction under this section is capped at ₹1,50,000 along with other deductions that are available.
- Life insurance plans bought for you, your spouse or your children can be claimed under section 80C.
- There are different types of life insurance covers to choose from like endowment plans, term plans and even ULIP.
- Certain plans like ULIP as well as endowment plans have a caveat about reversal of any tax deductions in case the policy is surrendered within five or two years respectively.
* Note: Please note that tax benefit is subject to change in tax laws.
Premium deductions for health insurance plans
Section 80D of the Income Tax Act is what governs the deductions for health insurance plans. Here are some pointers to note about it:
- Just like life insurance plans, the deduction of any premium paid towards health insurance plans can be claimed by an individual or an HUF.
- All types of health insurance plans (except a personal accident cover) are eligible for deduction under section 80D of the Act.
- The maximum eligible deduction is based on the age of the insured beneficiary.
- A sub-limit for preventive health check-up is also available within the larger limits specified for health insurance plans.
- The premiums need to be paid by a mode other than cash to be eligible for deduction. However, cash payment for preventive health check-up is allowed.
* Standard T&C Apply. Kindly visit the official Income Tax website for further details.
Note: Please note that tax benefit is subject to change in tax laws.
These are some distinctions in the deductions available for the premium paid towards life and health insurance policies. While life insurance provides financial support to your dependents, health insurance plans pay for your medical treatment — be it an individual plan, family floater plan, or even a health insurance plan for senior citizens
— without having you worry about the treatment cost. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read sales brochure/policy wording carefully before concluding a sale.