Income Tax Rebate on Postal Life Insurance

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Income Tax Rebate on Postal Life Insurance
Table Of Contents
Key Tax Benefits Under Postal Life Insurance (PLI)
What is RPLI?
What are the Tax Benefits under RPLI?
Understanding PLI and Its Types
Suraksha: Whole life Assurance Policy
Santosh: Endowment Assurance Policy
Suvidha: Convertible Whole Life Insurance Policy
Sumangal: Anticipated Endowment Assurance Policy
Yugal Suraksha: Joint Life Assurance Policy
Bal Jeevan Bima: Children's Policy
Maximising Your Tax Benefits and Protection
Conclusion

The Postal Insurance (PLI) was created by the government in 1884 to insure postal department workers against untimely death. Later, all its plans were extended to employees working in different government or private sectors. The awareness and meaning of postal life insurance plans have also been introduced to serve the insurance needs of the rural population through its Rural Postal Life Insurance segment. The PLI plans are most sought after by people because of the high coverage and affordable premiums.

Key Tax Benefits Under Postal Life Insurance (PLI)

Let's explore the noteworthy tax benefits you can access through PLI:

  • Section 80C Deductions: Insurance premiums you pay under RPLI policies could be deducted under Section 80C of the Income Tax Act, 1961, u/s, which, for tax purposes, is applicable when filing income tax in the assessment year. This significantly lowers your taxable income. With current deductibility caps up to Rs. 1.5 lakhs annually.
  • Section 10(10D) Exemptions: In case maturity proceeds are paid by the end of the term time of the RPLI policy, you can tax it with a few exemptions under Section 10(10D) of the Income Tax Act. You don’t get any additional obligations by avoiding taxes on your returns. This puts you in the best advantage to profit from the equity development.

To optimise your tax advantages under Section 10(10D), ensure your RPLI policies meet the following criteria:

  • For policies commenced before April 1st, 2012: Your one-time upfront premium should be at most 20% of the sum assured under the policy.
  • For policies commenced on or after April 1st, 2012: Keep the lower limits and ensure your annual premium doesn't surpass 10% of the sum assured.

What is RPLI?

To cover insurance for people who live in distant places in India, 'Rural Postal Life Insurance' (RPLI)  was first established on March 24, 1995. Inspection undertaken by the ad hoc committee of professionals (the “Malhotra Committee”) found in 1993 that insurance minimally contributes to the gross savings of households in India. Specifically, life insurance funds comprised only 10% of all household savings, and only 22% of those in India eligible for insurance had taken out policies. The endorsement of the committee's suggestions by the Indian Government led to expanding Postal Life Insurance coverage into rural areas, capitalising on the extensive network of post offices and cost-effectiveness, thereby fostering growth in the life insurance business.

This rural postal life insurance scheme aims to offer insurance coverage to the rural population and to provide benefits to the women workers of rural regions and weaker sections of society. Also, RPLI is creating awareness about insurance among the rural masses.

What are the Tax Benefits under RPLI?

Postal Life Insurance extends its policies to the country's rural population. This was done to spread awareness and offer financial help to the families of the sole-earning members of the lower-income category. The tax benefits under RPLI policies are the same as those of a regular life insurance policy. Policyholders can claim tax deductions on the premiums paid and the benefits applicable under the following sections of the Income Tax Act of 1961:

  • Section 80C
  • Section 10(10D)
  • Section 80D

Understanding PLI and Its Types

The postal life insurance scheme has six types of policies, which are as follows:

Suraksha: Whole life Assurance Policy

A whole life assurance policy offers the assured sum and the accumulated bonus after the policyholder reaches the age of 80 or when the insured dies, whichever may happen first. Here are some criteria for eligibility for postal life insurance:

  • Age criteria: 19-55 years
  • Minimum sum assured: ₹20,000
  • Maximum sum assured: ₹50,00,000
  • You can avail of loans after the completion of four years.
  • You can surrender the policy after three years.

You can convert the policy into an endowment policy after one year and before the age of 59 years.

Santosh: Endowment Assurance Policy

As per the endowment policy strategy, the sum assured and bonus is given to the assurer by maturity period (specifically given). The sum goes to the personal deceased or ancestor in case of the dying.

  • Age criteria: 19-55 years
  • Minimum sum assured: ₹20,000
  • Maximum sum assured: ₹50,00,000

You can surrender the policy after three years.

You can convert the policy into any other endowment policy per the scheme's terms and conditions.

Suvidha: Convertible Whole Life Insurance Policy

An assured amount and interest on the policy amount are the ultimate benefits of this plan, which will be received upon completion of selected maturity. This makes up for the situation in which the proceeds of the insured's death are transferred to the nominee/legal heirs.

  • Age criteria: 19-55 years
  • Minimum sum assured: ₹20,000
  • Maximum sum assured: ₹50,00,000
  • You can avail of loans after the completion of four years.
  • You can surrender the policy after three years.

You can change the policy into an endowment policy after completing five years, but the period should be before age 55. If not converted, the policy will default to a whole life assurance.

Sumangal: Anticipated Endowment Assurance Policy

This closed-term return guarantee policy has a maximum guarantee of ₹50,00,000. It is suitable for people who wish for periodic returns. The regular payments are not considered if the insured dies, and the complete assured sum and the bonus are given to the nominee or legal heir.

  • The policy with a tenure of 15 years has an age criteria of 19-45 years.
  • The policy with a tenure of 20 years has an age criteria of 19-40 years.

The periodical survival benefits for the 15-year tenure policy: 20% of the sum assured paid after six, nine, and twelve years. At the same time, 40% of the assured sum with a bonus is offered on maturity.

Periodical survival benefits for 20-year tenure policy: 20% of the sum assured paid after eight, twelve, and sixteen years. At the same time, 40% of the sum assured with a bonus is offered at maturity.

Yugal Suraksha: Joint Life Assurance Policy

This scheme needs any one of the spouses to be eligible for the PLI scheme. Under the joint policy assurance term, both partners are paid a lump sum with a single premium.

  • Minimum sum assured: ₹20,000
  • Maximum sum assured: ₹50,00,000
  • You can avail of loans after the completion of three years.

The death benefit is given to either of the survivors if any one spouse dies.

Bal Jeevan Bima: Children's Policy

  • The scheme aims to provide insurance coverage to the policyholder’s children.
  • Maximum number of children eligible: 2
  • Age criteria of children: 5-20 years
  • Age limit of the policyholder: Should not exceed 45 years
  • No premium payment is required for Bal Jeevan Bima if the policyholder dies.

Maximising Your Tax Benefits and Protection

To fully realise the advantages of Postal Life Insurance, consider these valuable strategies:

  • Tailor Your Policy Selection: Carefully evaluate your life stage, financial goals, and risk tolerance. Then, choose an RPLI policy that aligns with those.
  • Maintain Optimal Sum Assured to Premium Ratio: To qualify for the maximum tax exemptions under Section 10(10D), keep your premiums balanced concerning the policy's sum assured.
  • Consult a Tax Advisor: For personalised guidance on optimising tax benefits from your Postal Life Insurance, consult a qualified tax advisor.

Conclusion

Postal Life Insurance embodies a blend of security, savings, and tax efficiency, making it a compelling choice for individuals aiming to fortify their financial foundation. The tax benefits under PLI and RPLI enhance its appeal, offering tangible savings and contributing to wealth accumulation. With its inclusive eligibility criteria and the trust of government backing, PLI stands as a testament to a scheme that secures lives and fosters a culture of savings and financial prudence among the Indian populace. Whether it's for securing your family's future, planning for retirement, or optimising tax savings, Postal Life Insurance emerges as a robust option worth considering.

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