The TDS for life insurance policies where maturity proceeds are taxable have been
halved from 2percent to 1 percent in Budget 2016, says an article published in The
Economic Times in February 2016. Maturity/survival benefits and death benefits from
a life insurance policy are exempt from taxation under section 10 D of the Income
Tax Act except for cases where the annual premium exceeds 10% of the sum assured.
Premium payments are also eligible for tax deductions of up to Rs.1.5 lakhs per
year under section 80 C.
Life insurance is a must have product in your investment basket. Not only does it
provide financial security for your family after your death, but also offers tax
Know More Before You Make Your Choice
There are five types of policies sold in India. They are: term plan, whole-life,
endowment, ULIPs and money back policy. A Term plan is a pure vanilla product, while
all other polices are part investment products. Given below is a detailed explanation.
Term Plan: As the name suggests, it has a specific term (5-30 years). It
is one of the cheapest life insurance policies offering the highest cover. The entire
premium amount goes towards funding the risk. It only offers death benefit.
Endowment Policies: This is an extension of the term plan. However, unlike
the latter, it also offers survival benefits. Along with the sum assured, it offers
added returns as well. A part of the premium goes towards funding the cover, while
the other is invested in assets, equities and debt instruments. The sum assured
is disbursed either when the policy expires or upon the death of the policyholder
(whichever happens first).
ULIP: ULIPs are market-linked policies that offer the twin benefits of insurance
and market investments. A part of the premium goes towards the cover, while the
rest is invested in market-related instruments. Returns are dependent on market
Whole-life: Unlike term and endowment policies that offer life cover up to
a maximum of 75 years, whole-life offers you cover till you live or 100 years (whichever
is earlier). You have to pay premium up to a certain age (also called the maturity
period). On reaching maturity, you can either claim the sum assured and the bonuses
(if any) or choose to continue the policy.
Money Back Policy: Unlike the endowment policy where bonuses are paid along
with the sum assured, in a money back policy the insurer pays the bonus to the policyholder
periodically. On death of the insured, the entire sum assured is paid along with
the survival benefits.
You must consult your financial advisor before making a choice. He will advise you
whether to choose a term plan, a money back insurance policy or any other plan keeping
in mind your insurance needs and risk appetite.