Tax-benefit on some Life Insurance Policies affected post 31 March, 2023. What is the Alternative?

Life insurance is an insurance policy that gives a lump sum of amount to your designated beneficiaries if you were to pass away. 

There can be several reasons why someone might want to buy a life insurance policy, some of these are:

• Provide financial security for loved ones: One of the most common reasons people buy life insurance is to ensure their loved ones are financially secure if they were to pass away. A life insurance payout can help cover expenses such as mortgage payments, bills, and other living costs.
• Pay final expenses: Life insurance can also help cover final expenses such as funeral costs, medical bills, and other end-of-life expenses that can add up quickly.
• Leave a legacy: Some people use life insurance as a way to leave a financial legacy for their children, grandchildren, or other loved ones.
• Pay off debts: If you have outstanding debts, , car loan, home loan, mortgage, credit card debt, etc. a life insurance can help ensure those debts are paid off if you were to pass away.
• Supplement retirement income: There are certain types of life insurance policies, that help you build cash value over time, which can be used to supplement retirement income. Guaranteed Income Plans are one such option.

Overall, a life insurance can provide you with peace of mind by giving the financial backing to your loved ones. It is also important to carefully consider your options and choose a policy that meets your individual needs and goals.

Budget 2023, Change in Tax Exemption- Life Insurance category

In addition to some other decisions, a significant statement regarding life insurance was issued, stating that premiums from traditional plans issued after April 1, 2023 (other than ULIPS) are taxable when they exceed Rs.5,00,000. The death benefit, however, remains tax-free.

As March 31, 2023 proceeds, any policies bought after exceeding a premium of Rs.5,00,000 and falling into this category will not enjoy the tax benefit. Some of the popular Guaranteed Returns Income Plans might fall into this category, and a consumer might lose out on benefits such as:

The Advantages of Guaranteed Income Plans

1. Guaranteed income: As the name suggests, these plans offer guaranteed income to the policyholder after retirement. This income can be a fixed amount or can be linked to inflation, ensuring that the policyholder's income keeps pace with the rising cost of living.

2. Tax benefits: Guaranteed income plans offer tax benefits to the policyholder. The premiums paid towards the plan provide tax-benefit u/s 80C of the Income Tax Act,1961.

3. Flexibility: These plans offer flexibility in terms of payout options. The policyholder can opt to receive the income in lump sum or in regular instalments.

4. Security: Guaranteed income plans are backed by the insurance company, which means that the policyholder's investment is secure. Additionally, the policyholder is protected from the risk of market fluctuations, ensuring that they receive a steady income stream after retirement.

5. Estate planning: These plans can also be used for estate planning, as the policyholder can nominate a beneficiary to receive the income after their death.

6. Easy to understand: Guaranteed income plans are easy to understand and do not require any prior knowledge of the stock market or other investment options. This makes them an ideal investment option for individuals who are new to investing or are risk-averse.

If one can buy in this timeline then the maximum tax advantages can be availed. However, if one is unable to buy under this timeline, then one can think of buying ULIPs which have no change in tax-exemption as declared in Budget 2023.

ULIPs, or Unit Linked Insurance Plans, are investment products offered by insurance companies in India that provide a combination of insurance coverage and investment opportunities. 

Here are Top 5 Benefits of ULIPs plans in India:

1. Dual benefit: ULIPs provide both insurance coverage and investment opportunities, making them a versatile financial product. A part of the premium goes towards providing life insurance coverage, while the rest is invested in a range of funds that can potentially yield higher returns.

2. Flexibility: ULIPs offer a high degree of flexibility in terms of investment options, premium payment, and switching between different funds. Policyholders can choose from various funds based on their investment goals and risk appetite, and can also switch between funds to take advantage of changing market conditions.

3. Tax benefits: ULIPs offer tax benefits under Section 80C & Section 10(10D) of the Income Tax Act, 1961. Policyholders can get tax benefit of up to Rs.1,50,000 on the premium paid towards ULIPs in a financial year, and the maturity proceeds are also tax-free.

4. Long-term investment: ULIPs are designed as long-term investment products, with a minimum lock-in period of 5 years. This encourages policyholders to stay invested for the long term, which can help them achieve their investment goals and create wealth over time.

5. Transparency: ULIPs offer transparency in terms of charges and fees, making it easier for policyholders to understand the costs associated with the product. Insurance companies are required to disclose the charges and fees upfront, making it easier for policyholders to make informed investment decisions.

A wise strategy would be to buy your desired life insurance plan well before this timeline. Each individual’s requirements are different and one needs to get them evaluated first before taking any decision. For more information on what can be best options for securing your health and wealth, you can log onto www.bajajcapitalinsurance.com