Are you a parent looking for good investment schemes for children? Are you interested in insurance plans? Are you still confused as to whether choose a tax-saving child insurance plan or not? Then you are in luck because here, you will learn everything about the importance of choosing tax-saving child insurance plan. Read on to know more about them in detail.
Insurance Plans and Their Types
Several investment plans exist that provide much more returns than savings plans. One such major investment plan is an insurance policy. Insurance policies are schemes that give health/life cover in return for premium payments. The cover and add-ons are at the will of the policyholder, and the premium amount depends on the opted facilities and add-ons. The mode and frequency of premium payments are flexible, so the policyholder can select the one that suits them.
Insurance policies are the most common mode of investment in India, slightly behind Fixed Deposits and Shares. There are several nationalized and government-recognized insurance companies in India. Due to this ever-increasing number of insurance companies, there is a lot of competition between the companies. But this, in turn, benefited the customers as they have a lot of variety to choose from and that too at reasonable prices. All these insurance companies have several types of insurance policies that cater to different needs at different times. Given below are some of the prevalent insurance policies in India.
Life insurance is a policy that gives life cover to the policyholder. In case of the sad demise of the policyholder, the insurance company will give the assured amount to the nominee or legal heirs/dependents. Life insurance plan is a good investment option if the policyholder is the sole earning member of the household. If the family doesn’t have any other source of income other than the one that the policyholder brings, they should go for life insurance.
If anything unexpected happens to the policyholder, then the family can get the funds to sustain the family in such devastating times. The money can be enough to cover the family’s expenses for the time being. This money is also useful for the education costs of the children. And give them the required resources to become able to provide for the family.
Health insurance covers the health-related expenses that the policyholder will face in the future. This also includes the costs of treatment for any unfortunate accidents and injuries. With the money from the insurance policy, they can completely pay for the expenses that they bear at the hospital. Health insurance is also applicable for people having chronic diseases, but there is usually a waiting period of a few years.
If people face any fatal diseases that require a lot of money, sound health insurance can cover its expenses.
Vehicle insurance only deals with vehicles. Insurance cover for all types of vehicles is available under vehicle insurance. For vehicles, the insurance company pre-decides a valuation or insurable amount, which is usually lower than the cost of the vehicle. And this valuation decreases in small percentages every year.
If a vehicle meets with an accident, the company reimburses or gives the money equal to the repair charges. And in case of theft or complete wastage of the vehicle, the company will provide the entire sum to the owner in whose name they issued the policy.
Vehicle insurance is a great way to protect your vehicle at a very nominal rate. The government of India also introduced a law under the Motor Vehicle Act that all vehicles must compulsorily have insurance.
General insurance deals with all the other types of insurance. These give cover for everything, including but are not limited to properties, land, houses, factories, machines, equipment, valuables, etc. Apart from these, customized insurances also come under general insurance. You must have heard about how celebrities insure their body parts for huge sums of money as a precaution to protect their body parts which are an integral part of their career. These insurances also come under general insurance.
Unit Linked Insurance Policy (ULIP)
ULIPs are a great mode of insurance that combines the benefits of insurance as well as investment. Even while you get the insurance cover, the insurance company invests your money into the market. At term end, this rate cannot go any lower, but the return rate can increase if the market and the selected bond perform well. The main attraction of ULIP is that they give a high rate of returns which can even beat inflation. It is in comparison to other insurances which don’t provide any extra returns over the invested premiums or sometimes don’t even have a return policy for investment. So, considering this, ULIP’s benefits are much higher.
Child Insurance Plans
Child insurance plans are policies that are aimed at providing cover for children. They can be in the form of health or life insurance or even ULIP plans. Several people consider child insurance plans the best investment mode for their children. They use the money from policy returns for different important expenses of a child’s life like education, migration, business, marriage, or just to keep aside as savings.
All insurance companies have such child insurance plans. The main advantage of child insurance plans is that the government gives the maximum allowances as these plans are for children. One such allowance is tax savings. A tax-saving child insurance plan has several deductions and benefits for a taxpaying parent.
Tax Saving Child Insurance Plans
A tax-saving child insurance plan is a plan that gives the taxpayer the provisions to decrease the taxable income while filing Income Tax Returns. Most child insurance plans have this tax savings benefit from the government. When they specify in the ITR that a particular insurance plan is a child plan, they can deduct a huge amount every year for premium payments.
The greatest benefit of a tax-saving child insurance plan is that it reduces your tax burden. Nowadays, as all families are nuclear families, family expenses keep increasing day by day. So, it is good to have a scheme that reduces the tax burden while giving an investment potential.
Importance of a Tax-Saving Child Insurance Plan
Apart from reduced tax burdens, there are several other benefits to child insurance plans. Given below are some points that describe the importance of a tax-saving child insurance plan.
Maximum Tax Benefit as Compared to Other Insurance Plans
A tax-saving child insurance plan gives the maximum possible tax deductions. As per the rules set forth by Section 80C of the Income Tax Act of 1961, you can claim up to INR 1,50,000 per year for premiums of a tax-saving child insurance plan. However, tax laws are subject to change from time to time.
No Taxes on Maturity Returns
Another great benefit of a tax-saving child insurance plan is like most insurance plans, the final maturity amount that you receive at the maturity date is also tax-free. You don’t have to pay taxes for this return, even if it is a huge amount.
Multiple Deduction Over the Years
Child insurance plans are usually long-term, and people start investing in such plans even while their children are too young. So, the policy maturity date will automatically be around 10 to 15 years after the beginning of the policy. This is a large number of times you can deduct the premium amount from your ITR. And considering the final amount, you can legally deduct a huge sum from the money you pay as income tax.
Maximum Return Providing Investment Fund
A tax-saving child insurance plan is one of the highest return-providing investment funds when considering the tax-free premiums and returns. All other modes of investment have taxes, but insurances, especially child insurances, have the considerably lower tax.
Savings for Children
Through a tax-saving child insurance plan, you can save a lot of money for your child. They can use this money for different important stages of their life. Having substantial savings will help them be independent even in worse situations.
Flexible Withdrawal After Maturity
Tax-saving child insurance plans also provide the policyholder to choose the mode of maturity withdrawal. They can choose to get a lump-sum return of the entire sum at one go. Otherwise, they can choose a monthly payment type where they can get the complete amount to receive as monthly payments. Or they can choose the combination of both those options to get a certain amount as a lump sum and the remaining as monthly payments. Whichever mode you select, all return payments are tax-free.
A great benefit of a tax-saving child insurance plan is that it not only has a protected future but also gives partial withdrawal in case of emergency. Thus, giving the family a source to meet the expenses of unexpected incidents.
Now that you know all the benefits of a tax-saving child insurance plan, what stops you from getting one? A tax-saving child insurance plan will end all your worries about your child’s future while, at the same time, reducing your tax burden. It is a feature that no other investment scheme will provide. So, it is a must to have such a plan to avoid paying hefty sums of money as income tax which you can rather use for other family needs.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.