What is an Insurance?
Insurance corporations are financial intermediaries that provide direct insurance and reinsurance services, as well as financial protection against future risks.
An insurance policy commits the insurance company to compensate the policyholder or his/her family for losses caused by a pre-determined event in exchange for a fee, or “premium.”
In most cases, insurance companies will cover specific types of events.
- In the case of life insurance policies, the event is usually the insured person’s death or deterioration of health. Contracts for life insurance are frequently held to save money over a longer period of time and, in some cases, for retirement.
- Non-life insurance policies provide protection against financial losses. They pay for medical expenses, as well as home, car, and fire insurance, as well as financial losses such as lost wages.
How Does Insurance Work?
An insurance policy is a legal contract that binds both policyholder and the insurance company towards each other. It has all the details of the conditions or circumstances under which either the insured individual or policy nominee receives insurance benefits from the insurer.
Insurance is a method by which you can protect yourself and your loved ones from facing a financial crisis. You buy an insurance policy for the same, while the insurance company takes the risk involved and offer insurance cover at a specific premium.
In case of any eventuality, the insured or nominee can file a claim with the insurer. Based on the evaluation criteria for claims, the insurer reviews the claim application and settles the claim.
Tax Benefits of Insurance
Other than the protection benefits of insurance policies, you can also avail income tax benefits.
Section 80C
The premium paid to buy life insurance policies are eligible for deduction from the taxable income, Under Section 80C of the Income Tax Act. The upper limit for these deductions is Rs. 1.5 Lakh.
Section 80D
Health insurance premium paid to buy policies for yourself and your parents is also tax-deductible under Section 80D of income tax Act 1961
Section 10(10D)
The life insurance benefits that you or the insurance policy nominee will receive from the insurer are tax-exempted under this section.
You can claim these tax benefits of insurance at the time filing your income tax returns.