Investing in a Life Insurance Cover is one of the smartest ways to protect your family from falling into a financial crisis in case of your untimely death. Have you considered whether this considerate gesture could turn awry, and your loved ones are handed over a hefty bill while you are not around?
Let us take this discussion further and see whether you can choose the best insurance plan for safeguarding your family and save tax at the same time.
What is Life Insurance?
Life insurance cover is an agreement between you and an insurance company that you will pay regular premiums for a stipulated period as per the conditions agreed upon in the policy. In return, the insurance provider will pay your family a lump sum following your death.
It is a general practice that people choose a life insurance policy to provide financial protection to their families, even when they are not around to ‘provide’ for them.
Your nominee or the beneficiary listed in the policy will be entitled to receive the maturity amount as a lump sum amount and help them manage your family’s finances after your death.
The maturity amount accrued depends on the type of cover you have purchased and how many premiums you have paid.
Another benefit of getting a life insurance policy is that it could help save tax provided they fall under the Government guidelines.
The downside of life insurance plans is that they are only payable after the policy holder’s death, which means that they can’t claim the policy if they get disabled due to an accident.
You have to check the policy documents for any discrepancies in the policy and adequately understand the policy terms and conditions.
Tax saving and Life insurance
What if you have exhausted your Individual Savings Account (ISA) allowance and are on the lookout for other tax-saving investment options? You can look at life insurance as a viable option.
You need to find the right type of plan that does a bit more than paying your kin in case of your death. Choose the policy that is designed to be an investment as well as financial protection for your family. You could use these policies to save tax and grow your wealth.
These policies are popularly known as endowments or investment plans investment bonds, depending on how you pay your premium. Investment plans need you to pay premiums regularly for a set period. In contrast, investment bonds need a lump sum amount during enrolment.
All types of life insurance have to adhere to a set of strict tax rules. You could always get in touch with a financial advisor to get all your questions answered and help you pick a policy that complies with the stringent rules that create a qualifying life insurance policy.
Tax advantages of a qualifying policy
Any gain accrued on a qualifying policy can never be taxable under the government laws. But, purchasing a non-qualifying insurance policy can lead you to pay higher income tax rates.
The calculation of any profit or gain is calculated based on the policy’s maturity value or the value during the time of its surrender. Hence, it would be wise to ensure that you have enrolled in a qualifying insurance plan to enjoy maximum tax benefits.
Did you know?
Your insurance providers have to tell you about some important facts related to the investment. They have to explain everything related to investment and its intricate details, including how they work, the possible risks, etc.
Generally speaking, investing in excellent and qualifying life insurance is indeed the best way to save tax. ISAs or savings accounts may be a useful area to begin with, rather than looking around too much for a tax exempting plan!
Always seek help from financial assistance from to financial advisor to find and enroll in a qualifying policy. Analyze all the pros and cons to figure out the best options for you and your future.