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Tax Benefits on Child Insurance Plans

TeamAckoJan 17, 2024

Child insurance plans in India offer not only financial security for your child's future but also a range of tax benefits that can greatly alleviate your tax burden. These comprehensive insurance plans are designed to safeguard your child's aspirations and financial stability in case of unforeseen circumstances. In this article, we'll delve into the various tax benefits associated with child insurance plans in India and provide you with a comprehensive understanding of how these plans work.

Contents

Tax Benefits on Child Insurance Plans in India
Maximising Tax Benefits: Tips and Strategies
Why is it important to buy health insurance for children in India?
Wrapping up
Frequently Asked Questions

Tax Benefits on Child Insurance Plans in India

Child insurance plans in India come with several tax benefits that can help you save significantly on your tax liability. Here's a detailed look at the tax advantages these plans offer.

Tax Exemption Under Section 80C

One of the primary benefits of child insurance plans is the tax exemption available under Section 80C of the Income Tax Act as per the old regime. The premium paid towards these plans qualifies for deduction up to ₹1.5 lakh from your total taxable income. This provision not only reduces your tax liability but also encourages you to invest in securing your child's future.

Tax-Free Maturity Benefit

Under Section 10(10D) of the Income Tax Act, the maturity benefit received from child insurance plans is completely tax-free. This means that the lump-sum amount you receive upon maturity, including the accrued bonuses, is exempted from income tax. This exemption ensures that the financial corpus you build for your child remains intact, serving its intended purpose without any tax deductions.

Partial Withdrawals and Tax Benefits

Child insurance plans often come with the flexibility of partial withdrawals, which can be incredibly beneficial during urgent financial needs. The amount withdrawn, including any accumulated bonuses, remains tax-free. This feature adds a layer of liquidity to the plan while maintaining its tax advantages.

Premium Waiver Benefit

In case of the unfortunate demise of the policyholder (parent), child insurance plans typically include a premium waiver benefit. This means that the future premiums are waived off, but the policy continues to provide coverage. This waiver of premiums is not considered a transfer and is exempt from taxation under Section 10(10D).

Role of ULIPs in Child Insurance

Unit Linked Insurance Plans (ULIPs) designed for children's education and future planning offer a unique combination of insurance and investment. While the premiums paid towards ULIPs are eligible for tax deduction under Section 80C, the returns generated from these plans are also tax-free under Section 10(10D). ULIPs provide an opportunity to invest in market-linked funds, potentially yielding higher returns in the long run.

Maximising Tax Benefits: Tips and Strategies

To make the most of the tax benefits offered by child insurance plans, consider the following tips:

Start Early: Initiating a child insurance plan at an early age not only ensures lower premium payments but also allows you to build a substantial corpus over time.
Understand the Lock-In Period: Child insurance plans typically come with a lock-in period. It's essential to be aware of this period to fully capitalise on the tax advantages.
Opt for Regular Premium Payment: Regular premium payment ensures discipline and consistency while maximising tax benefits.
Evaluate Investment Allocation: If you opt for a ULIP, periodically review and adjust your investment allocation to align with your risk appetite and financial goals.

Why is it important to buy health insurance for children in India?

As a responsible parent, ensuring a bright future for your child is a top priority. Child insurance plans have emerged as a powerful financial tool that not only provides life coverage but also offers attractive tax benefits. These plans, tailored to meet your child's future needs, offer a dual advantage of securing your child's dreams and optimising your tax planning. Here are the reasons why buying health insurance is important for your child.

Financial Protection: Health emergencies can strike at any time, and medical costs are rising rapidly. Having health insurance ensures that if your child needs medical attention, you won't have to worry about the financial burden of hospitalisation, surgeries, medication, or other healthcare expenses.
Comprehensive Coverage: Children can be susceptible to various illnesses and accidents. Health insurance provides coverage for a wide range of medical treatments, including routine check-ups, vaccinations, hospitalisation, surgeries, dental care, and more.
Early Diagnosis and Preventive Care: Many health insurance plans offer coverage for regular health check-ups and preventive care services. These help in early detection of any potential health issues, ensuring that problems are addressed before they become more serious.
Lifetime Renewability: By purchasing health insurance for children at an early age, you secure their access to health coverage for life. This can be extremely beneficial as they grow older, as pre-existing conditions might develop, and having insurance already in place ensures continued coverage.
Rising Healthcare Costs: Healthcare costs are constantly increasing, and the medical inflation rate in India is quite high. Health insurance acts as a shield against these rising costs, protecting your finances from unforeseen medical expenses.
Unforeseen Emergencies: Accidents and illnesses can happen unexpectedly. Having health insurance means you are prepared for such emergencies, and you won't have to dip into your savings or borrow money to cover medical expenses.
Access to Quality Healthcare: Health insurance can provide access to a network of hospitals and healthcare providers. This ensures that your child receives medical attention from reputable institutions, improving the quality of care they receive.
Tax Benefits: In India, premiums paid for health insurance policies for children are eligible for tax deductions under Section 80D of the Income Tax Act. This can provide additional financial relief.
Peace of Mind: Knowing that your child is covered by health insurance provides peace of mind. You can focus on their well-being without the constant worry of how you will manage the financial aspect of their medical care.

Wrapping up

Investing in child insurance plans in India goes beyond ensuring a secure future for your child; it's a strategic move to optimise your tax planning as well. With tax benefits under Section 80C and tax-free maturity benefits, these plans offer a comprehensive solution for safeguarding your child's aspirations. Whether you're a resident or an NRI, child insurance plans provide a range of advantages that contribute to your child's financial well-being. Start early, stay informed, and make the most of the opportunities these plans offer to secure a promising future for your child.

Frequently Asked Questions

Here are some common questions about tax benefits on child insurance plans.

Is the premium paid towards child insurance plans tax-deductible?

Yes, the premium paid towards child insurance plans is tax-deductible under Section 80C of the Income Tax Act.

Are the maturity benefits taxable?

No, the maturity benefits received from child insurance plans are completely tax-free under Section 10(10D).

Can NRIs avail tax benefits on child insurance plans?

Yes, NRIs can also enjoy tax benefits on premiums paid for child insurance plans under Section 80C, subject to the tax laws of their country of residence.

Is there a lock-in period for these plans?

Yes, child insurance plans typically come with a lock-in period. During this period, the policyholder cannot surrender or withdraw the policy.

How can I ensure the best returns from my child insurance plan?

To maximise returns, consider opting for a ULIP and periodically review and adjust your investment allocation based on market conditions and financial goals.

Can I make partial withdrawals from the child insurance plan?

Yes, many child insurance plans offer the flexibility of partial withdrawals, which are tax-free.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.