Why Would it be Wrong to Look at Insurance as a Mere Tax Saving Tool?

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5 min read

Updated on Nov 25, 2022

Why Looking at Insurance as Just a Tax Saving Tool Could Be Wrong?

Insurance has many extensive usages and benefits than just serving the purpose of a tax saving device. Are you looking at insurance just for the sake of saving tax? If so, read on to know its other benefits. Savings and investments are two things that everyone does in his/her own way and as per his/her own capacity. But after saving your hard earned money for years together, if you had to lose it because of an untoward or unforeseen situation, it is the most unfortunate thing.  And it does happen, especially if there is a sudden condition of severe health in the family or an accident etc.

So, during such times, what comes to your rescue is insurance. If you have proper insurance coverage, you can be sure to avoid giving your savings away for such unfortunate life events.

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For instance, take the case of Mr. Suresh Prabhu, who has worked hard throughout life to save enough for his retired life so that he and his wife can survive independently. Since his children are already settled, he has no worries to take care of them anymore. However, a sudden illness that required him a huge amount of 4 lakhs for treatment made him realize that he is going to lose all his savings in one go.  Now, he started worrying about his and his wife’s future. Thankfully, his son had health insurance offered by his employer and he used it to get the treatment done.  So, Mr. Prabhu was relieved as the medical insurance took care of the treatment including pre and post hospitalization costs and other charges.

7 Benefits of Health and Term Life Insurance, apart from the Tax Savings

However, many people who do not have insurance cover are not so fortunate and had to lose their savings altogether.  This is because people do not buy insurance to cover their health and other needs. In fact, they see insurance as a mere tax savings tool. Though insurance allows policyholders to save tax under section 80C and 80D of Income Tax Act, it also holds many other significant benefits along with saving  tax, which we are going to discuss in this post.

  1. Allow the security of a family –  The unpredictability of people’s health and life because of the rising number of critical diseases, accidents etc., have made it important for people to seek extra coverage  of insurance along with their existing income. Moreover, your dependants look forward to you for any of their requirements and for a secured future. A policy of life insurance can allow your family that security even if you are not around to take care of them. With a term insurance plan, you can secure the education of your kids and livelihood of your family in your absence.
  2. Allow policyholders to fulfill long term goals –  There are many kinds of insurance plans available to suit the needs of different people. Some plans allow the insured to avail regular payouts, while some allow a lump sum at maturity. These plans support individuals in fulfilling their long term goals like purchasing a house, fulfilling child’s education, wedding etc.  If you are seeking regular dividends, you can go for a linked plan or any other plan suiting your needs.
  3. Serve as a saving tool –  Unit-linked plans and savings plans are flexible in terms of the returns that they provide. Purchasing saving policies at a young age allow accumulation of wealth, while it also facilitates the insured to draw a regular income.
  4. Start before it is too late – Many people delay the insurance buying procedure since they consider it a mere tax saving means. This is because in the initial years of employment, many people are already within the tax exempted bracket. Also, many young people live a carefree life without worrying about any investments and savings. Thus, they miss out on making any investments. But the fact is, premiums of life as well as health insurance plans are low when you are young and away from diseases. However, when you seek insurance late in your life after falling prey to diseases, the premiums also become quite high. Also, many people are no more eligible for any life cover at all. So, purchasing a proper health and term insurance plan when you are young and healthy is important.
  5. Add extra to your retirement goals – Planning for your retired life at a time when you are young and earning well is necessary. If you do not plan your retirement properly, you may face hardships in your old age. By choosing a good term life insurance policy, you can avail regular monthly income throughout your retired life. You can also seek annuity plans in case you want your insurer to pay you a certain amount as a single payment or in installment to serve you as a source of income after retirement.
  6. Allow you to pay off your liabilities – Not only insurance serves as monetary and health security, they also serve the purpose of supporting you with your liabilities.  Hence, you do not need to take loans and credits in case of emergencies if you have enough insurance cover. Further, with a proper life insurance policy, you can even take care of your existing loans too.
  7. Allow mental peace –  Besides everything else, the best thing that insurance allows is the peace of mind. It is normally seen that any unfortunate incident leaves a family shattered, especially if it is pertaining to health.  As such, the cost of treatment has gone too high and thus it is important to cover your family with a good life insurance cover.  As per the normal rule, one should opt for an investment and insurance cover that is ten times the annual income of the person. This way, you can earn a stress-free life.

Read More: 5 Tax Saving Investment Alternatives for Indian Citizens

To Sum Up

So, as discussed above it is a fallacy to look at insurance as a tax saving tool. Insurance is a subject matter that is dynamic and it allows varied coverage and serves the insured as a savings tool and supplement their income. Hence, planning insurance from a young age is a good idea. However, it is equally important to do proper research and compare policies before investing.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

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PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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