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Tax planning in March: How a multi-year health cover keeps premium and provides tax benefits

Health insurance plans, which come with tenures of up to three years, give longer coverage, reductions on premiums, and locked-in insurance premiums, apart from tax benefits.

Written by Thelearnvine

Health insurance has a greater relevance now, especially in the post-pandemic era. At a time when medical inflation has been growing relentlessly, health insurance has arisen as a safety net, giving complete coverage.

Lifestyle diseases, and the cost of decent medical care, can drain your funds. This is when health insurance plays a crucial part. It not only acts as an emergency armour, but also offers multiple benefits, such as hospitalisation costs, day-care operations, and cashless hospitalisation, among others. Health insurance also has tax perks associated with it. Under Section 80 D of The Income Tax Act, 1961, a tax concession is given on the payment paid towards health insurance plans. The financial year is nearing its end, and this is when many update their financial plans and investment choices.

While getting health insurance, people often come across multi-year policies. As the name clearly suggests, a multi-year health insurance policy is one that gives coverage for more than one year. It generally has a term of two-three years.

Advantages when purchasing multi-year health insurance plans

These laws have several benefits associated with them. In a yearly policy, you face the trouble of updating every year, which can be unpleasant. If you fail to update the insurance on time, you may lose out on the benefits. On the contrary, multi-year health insurance plans, which can be bought for up to 3 years, can save you from those problems by getting insurance coverage  in one go for a specific number of years. To be clear, there is no need to update a multi-year health insurance policy each year.

Secondly, in a yearly renewal insurance, there is a chance of a rise in premiums. However, with multi-year health insurance policies, people get the benefit of locking in premiums for a set amount of time. This saves them from the load of possible hikes, giving financial relief in times of inflation.

In addition to offering security for longer coverage, these plans also offer discounts and savings. Most health insurers offer up to 10 percent off on picking for a policy term of two years and up to 15 percent discount when choosing a three-year policy. Thus, these programs are more cheap and can easily be bought by the middle-income group. Multi-year health insurance plans could also be helpful to senior people, who might have to pay higher rates because of their age.


Tax savings on premiums paid

An person orHUF ( Hindu Undivided Family) may request to claim  tax deduction under Section 80 D of The Income Tax Act towards health insurance payments. Tax benefits for health insurance plans have an upper limit of Rs 25,000 for self, partner, dependent children or parents. The top limit for family or parents who are older citizens is Rs 50,000.

Tax concessions given on annual basis

Individuals buying multi-year policies often have worries over tax-deductions. Tax deductions are determined equally for each year based on the policy’s length, as per current tax deduction rules. So, if an individual pays a lumpsum payment of Rs 60,000 for a health insurance policy covering three years, s/he can claim Rs 20,000 each year as a tax deduction under Section 80D of The Income Tax Act. If seniors pay a premium of Rs 1.5 lakh as premium for a multi-year insurance, the exemption limit will be Rs 50,000 each year, as per tax rules. So, they can claim Rs 50,000 in the first year and the balance amount later, for the next two years.

Insurance companies also give a tax certificate saying the amount that can be claimed under Sec 80D yearly to avoid any confusion. It is to be mentioned that the method of premium payment should not be cash to be qualified for tax deductions.

It’s important to note that some plans might also cover the policyholder's spouse's parents. However, the amount paid might not count for a tax deduction. People who choose the new income tax regime won’t be able to benefit of allowances as compared to those who opt for old tax regime.

 a multi-year health insurance policy provides a host of benefits, which makes it a financially sensible choice to secure health coverage for a longer time. It provides the comfort of extended coverage, savings on premiums, and locked-in premiums, thereby bypassing price revision due to inflation or age, while giving tax benefits.

However, it should be mentioned that while tax benefits have long been reasons for many purchasing health insurance, its purpose goes well beyond those benefits. A complete health insurance policy works as a raincoat during a health emergency, protecting you from falling into the deep pit of medical bills.

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