Will your insurance policy get tax benefits?

When this year’s budget was announced new rules were laid down for life insurance policies. Earlier the policy holder got tax deduction on premium paid under section 80c and tax free income on maturity under sec 10 (10d).

The budget has clearly issued directives that after April 2012,all insurance policies must meet the 10 times criteria to claim tax benefits as sec10(10d) has to be followed strictly.

To ensure that companies do not design products to bend the rules, the budget has clarified that the cover shall not include bonuses and other payments made by the company. The budget also clarified that the cover should remain at least ten times throughout the tenure of the policy, and this means that plans in which the cover comes down from second year will not be accepted.

If you are planning to invest in a life insurance policy make sure it complies with new tax benefits like the base cover should be at least ten times the annual premium. For instance if the premium is Rs.14, 000 per year, then the cover should be at least Rs.1, 40,000.

Finance ministry is also keeping a strict watch on the insurance companies, their agents and advisors who mis- sell the policy and will initiate a strict action against them. If the corrective measures are not taken in time, the Insurance Regulatory and Development Authority (IRDA) will be flooded with complaints from tax payers who have been denied tax deduction and exemption on their investments in insurance.