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Should you consider taking life insurance policy for income tax benefits
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life insurance policy, insurance premiums, income tax benefits, life insurance
With all the credit instruments on the downhill, ‘Insurance’ has emerged as the favourite investment option today! And going by the content of the insurance advertisements that are constantly bombarded from our TV, everyone needs insurance!! Then there is the tax factor too!!
Of all the insurance types, what comes to our mind first is the Life Insurance. So we start hunting for an insurance policy that agrees with our requirements. But if our main requirement is to get tax benefits from the policy, we should consider the following points before selecting a policy.
Pros
There are several benefits of taking a life insurance policy in completing the tax saving process because this will help an investor on two fronts – getting a cover as well as ensuring that there is a tax benefit on the investment made for the purpose. o There is the insurance cover that is available for anyone who makes use of this benefit, so there is some bit of the financial planning process that is taking place with the use of the life insurance route. o The insurance cover can be quite significant for someone who wants to ensure that he/she gets a higher amount of cover especially for those who are young and this can be easily done for a small amount. o The overall payment is spread over several years, so there is no pressure in just one year and this also makes the process smoother because it is a long-term investment. This reduces the one-time burden on the person making the investment and the good part is that the tax benefit will be available for all the years as long as the amount is within the overall limit. o Most types of policies are covered under the tax benefit, so there is no major restriction as far as the type of cover is concerned. This allows the investor to get what they want along with the ensuing tax benefits.
Cons
There are also some negative factors that are involved when a life insurance policy is chosen for the purpose of claiming the tax benefits. This also has to be considered while making the final decision. o In the search for tax benefits, people often end up buying insurance that they are not able to afford or are taken to the extent that they do not need. Several people have a higher cover than what their position requires and hence it is something that can be avoided. o Most insurance premiums are recurring payments that have to be made year after year and this can cause a strain in the financial situation of a person in the coming years because the position some time down the line might not have been visualised earlier. Thus a premium that is affordable this year need not be affordable after a couple of years. o The notion of insurance as a savings option often leads to a situation where the return from the effort is actually lesser than what could have been obtained. When the insurance route is also used as an investment route then the overall return often does not match up against pure investment choices. o Many people also end up with a lower amount of insurance than they actually need because of the nature of the policies bought. Since they buy insurance for the purpose of completing their tax requirement the actual cover that is taken is actually very less. This is because when it comes to term policies the premium is very less even for a large amount of cover. A person thus could be paying a large amount of premium but they might not be having the required amount of cover.
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