Plans allow systematic enhancement of wealth with insurance
The primary purpose of any insurance plan has to be protection and security. You take insurance for a very specific purpose, for financial security of family members. There are investment linked insurance plans that give you life cover, wealth enhancement and secure investment channel. They help you plan for the unforeseeable future; the reason investment linked insurance policies are called savings plans. They help save for long Term goals or for unforeseen future expenditures like building a retirement corpus, preparing for the child’s higher education. They offer life insurance cover for a fixed duration and come with a survival benefit. Along with so many other benefits they help save tax.
The Premium paid towards investment plans are not taxable and fall under section 80C of Income Tax Act. As per the act you can invest up to Rs. 1Lac in insurance and other channels mentioned in the section and save almost up to 31000/- of the taxable income.
There are various options available for investment plans through which Tax Benefit can be availed.
In these investments, the proceeds of the insurance are also exempt from tax under section 10D of the Income Tax Act. The proceeds may be in the form of life insurance cover in case of death of the Policy holder or as the Survival Benefit or the maturity amount. So whatever you had invested was tax free and the benefit you get on maturity is also exempt from tax. So you get a double tax benefit by investing in such a plan.
Here it becomes important to take note of the fact that investment plans are long term investments and the investor needs to hold on to the policy till the end of the term to get the maximum benefit. Don’t stop paying premiums before the premium payment term is over. This will mean reduced returns or even Lapse of policy if it is not reinstated within the given timeframe. Try not to surrender or discontinue the policy before time. Depending upon the exact policy wordings, returns may become taxable if the policy is surrendered before time or you may have to forego the tax benefits that you may have availed on the insurance premium
Investment plans are savings at various levels. You save systematically for a substantial corpus at a future date; you save tax on the premium paid towards these insurance plans and the returns are not taxable either. It is also a good way to build a corpus for your dependents if something untoward happens to you. All you need to do is not to give up the plan before maturity.