Insurance can be of different types and broadly divided in three categories. The categories are life insurance, health insurance and pension plans.
1. Life Insurance
Life insurance protects the family of the policy holder on his/her unfortunate death. They can be of different types like term plans, money back plans, whole life insurance plans, ULIPS etc.
However, they all are treated equally by the Income Tax Act. Tax benefit under 80C is available for life insurance policies. The limit for tax benefit has been increased to Rs 1.5 lakh under 80C during budget 2014. The minimum sum assured should be 10 times of the premium paid. Upon death of the policy holder, the maturity value is entirely tax exempted.
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2. Health insurance
Health insurance has become a very important aspect in today's life as medical treatment has become costlier by manifolds. If there is any medical emergency then your health insurance saves you from lots of harassment. Tax benefits under section 80D are also available on health insurance. Senior citizens can claim Rs. 20,000 and others can claim Rs. 15,000 tax benefits. The sum received is tax free upon critical illness of the policy holder.
3. Pension plans
Pension gives you the liberty to enjoy life even after retirement. It builds a corpus for you and provides you with monthly income to maintain the same life standard. In pension plans, there are two phase - one is the accumulation phase and the other is the withdrawal phase. Tax benefit is available in the accumulation phase only. On pension plans, tax benefits are available under 80CCC and the maximum limit is Rs. 1.5 lakh.
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Insurance plans therefore gives you tax benefits. However, you must carefully read all the terms and conditions before buying insurance. You should not buy any insurance plans for the sake of getting tax benefits.