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Insurance as a tax saving product

For an individual, insurance offers the chance to save as well as get the benefit of avoiding paying taxes.


There are two certainties in life – death and taxes. These are the words of Benjamin Franklin, one of the founder fathers of United States of America. The only difference between the two is death cannot get worse every time the finance minister rises to present his annual

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On a serious note taxes can either be paid, evaded or avoided. Evasion of tax is a crime so we will not be discussing it. Paying of taxes is a nation duty without which the government will not be able to run the country.

There are two ways the government will be able to build roads, ports and other infrastructure in the country. One is from the taxes it collects from its people and second is from borrowings, either from its own people or from abroad. Given a choice any government would like to borrow from its own people.

Government borrows from its citizens by issuing various bonds or taking money from banks where people deposit their savings or from long term saving instruments like pension funds. Government encourages savings because they will then be able to access funds for their need and also to promote investment in the country.

In order to increase savings government announces various tax incentives. Those who do not want to save or have crossed their tax benefit limits pay taxes while the option of avoiding tax can be capitalised by taking advantage of these tax incentives. Either ways the government is able to utilise your money, but the difference is tax once paid will not come back to you but the savings you do to avoid paying taxes comes back with interest.

Government allows deduction under various schemes through which one can avoid paying taxes on the amount saved under these schemes. is one of the instruments selected by the government to give you tax shelter. By investing in life or health plans you are able to claim deductions on the premium paid every year. There is of course a ceiling till which one can save in these instruments. above these ceiling will be subjected to tax.

Government has allowed tax deductions under the following schemes for an individual. It needs to be clarified at the outset that tax deductions means that the saved amount is reduced from taxable income. Thus, say if you earn Rs 5 lakh and make an investment in a tax deductible instrument of Rs 50,000 your income available for calculating tax will be Rs 4.5 lakh.

Section 80C: Payment of life premiums and investment in specified government infrastructure bonds are eligible for deductions under this section. The recent has increased the deduction limit from Rs 1 lakh per annum to Rs 1.5 lakh per annum.

Section 80CCC: This section deals with deductions and income in respect of contributions to certain pension funds by the individual assesse. The deduction available under this section is clubbed with that in Thus the cumulative deduction available between the two sections is Rs 1.5 lakh as per the new as compared to Rs 1 lakh in the previous year.

Section 80D: This section provides for tax deduction from the total taxable income for the payment of medical premium. This section allows deduction for the payment of individual as well as his parent. Deduction up to Rs 25,000 has been allowed in this for the individual (increased from Rs 15,000 last year) while for parents above 60 years of age the premium has been increased from Rs 20,000 to Rs 30,000.

A point to be noted here is that health premiums are not savings but are risk control It saves a person the cost of medical expenses in case of an adversity.

For an individual, offers the chance to save as well as get the benefit of avoiding paying taxes.

The beauty in investment through and is that all risks are covered. Risk of life is covered under while that of health is covered under Financial instruments other than do not offer the benefit of risk cover. Along with risk cover the products offers you the chance to earn from your tax savings.

These sections cover the essence of products by offering risk cover, tax savings and financial returns. A fringe benefit is that your money has been utilised by the government for nation building.

First Published: Wed, March 04 2015. 13:01 IST
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