We are looking for information on Insurance and tax benefits associated with insurance?
Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on happening of the insured contingency.
The contingency is the event which causes a loss. It can be the death of the policyholder or damage/destruction of the property. It’s called a contingency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by the insurer.
It is the burden reduction on the taxpayer. A taxpayer has to contribute some percentage of their income to the government so that they can provide them with the required facilities in return. The tax benefit is like an allowance or says credit to the taxpayers to reduce their liability and instead invest the same amount in something beneficial. There are many insurance policies available for your safety, but only a few insurance policy premiums can be claimed under tax benefit. Among the main ones are life insurance and health insurance which can be claimed under the Income Tax Act 1961.
Benefits of Life Insurance
Risk Coverage: Insurance provides risk coverage to the insured family in form of monetary compensation in lieu of premium paid.
Difference plans for different uses: Insurance companies offer a different type of plan to the insured depending on his need for insurance. More benefits come with the more premium.
Cover for Health Expenses: These policies also cover hospitalization expenses and critical illness treatment.
Promotes Savings/ Helps in Wealth creation: Insurance policies also come with the saving plan i.e. they invest your money in profitable ventures.
Guaranteed Income: Insurance policies come with the guaranteed sum assured amount which is payable on happening of the event.
Loan Facility: Insurance companies provide the option to the insured that they can borrow a certain sum of amount. This option is available on selected policies only.
Tax Benefits: Insurance premium is tax deductible under section 80C of the income tax Act, 1961.