Don’t let the new tax regime stop you from investing in term life insurance plans

Term insurance is an affordable way to create financial security for you and your family. A good insurance plan ensures financial stability for your loved ones, in case of an unfortunate event. With a term life insurance, you also get an option to cover yourself financially from critical illnesses, if they ever strike. Whether you are single, newly married, a young parent, or have retired parents you can be financially prepared to help your loved ones lead a secure future.

People purchase a life insurance policy just to avail of tax benefit that premium payments can fetch them, without considering their insurance needs. But the tax benefit is not the only factor to consider while buying an insurance plan. A term insurance plan acts as financial support for a family when the primary earner dies.

Even financial planners suggest taking a life insurance cover before starting to invest in long-term goals. Many term life insurance providers offer online term plans at a discounted rate compared to the offline plan. This is due to the lack of any intermediaries such as the agent or the branch between the policyholder and the insurance company. People find it easier to buy term insurance online from the comfort of their homes.

Term insurance tax benefit

With the new tax regime, some taxpayers expected the income tax slabs to be widened. Others were hoping the exemptions and deductions would be increased. The budget for 2020 dashed a lot of these hopes, widened the income tax slabs and reduced tax rates, taxpayers who opt for the new regime will have to forego most of the exemptions and deductions that the taxpayer’s avail of. All the exemptions and deductions under Chapter VI-A, including the house rent allowance (HRA), investments under Section 80C, NPS contribution, medical insurance premium and even the leave travel allowance which is tax-free if claimed once in two years. The deductions under Chapter VI-A add up to a huge amount. In their returns for the financial year 2017-18, individually assesses claimed deduction for more than Rs 4.45 lakh crore.

The removal of tax exemptions and deductions certainly makes compliance less tedious, but avid tax planners who maximized their tax deductions will probably pay more tax under the new tax regime. The Central Board of Direct Taxes (CBDT) has clarified that employers will have to deduct TDS from salary for FY2020-21 as per the tax regime – new or old – chosen by the employee. If an employee wants to go for the new tax regime, he/she must inform the employer or the TDS would be deducted by default as per the old regime tax rates.

Taxpayers will have the option to switch to the new tax regime that will help the taxpayers in making choices based on their financial situation. Moreover, individual taxpayers will have the option to switch from the old regime to the new structure and vice versa every year. If a taxpayer has made certain investments or expenses in a certain year, he can choose to make a switch to the old tax regime and business owners won’t have the option to switch back and forth every year.