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Why health insurance policy is important during the end of the financial year 2021?

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Published on March 17, 2021 | Est Read Time: 3 min

We live in uncertain times. Working professionals find themselves cornered on three sides by employment insecurity, rising healthcare costs, and a worrying rise in both infectious and lifestyle-related diseases. For this reason, health insurance has become more important now than perhaps at any other time in history. A good health insurance policy covers the cost of medical checkups and treatment for oneself and one’s family. But did you know that health insurance does more than just keep you and your family protected from medical emergencies? In fact, your health insurance policy can also be an effective tool for tax-saving, and thus in the long run, for wealth-creation. As the end of the financial year approaches in March 2021, we are all preparing to file our tax returns and thinking about our financial goals. Read on to find out more about health insurance policies and their various benefits.

What is a Health Insurance Policy?

A health insurance policy is a scheme in which your medical expenses in case of illnesses or accidents/injuries are covered by your insurance provider in lieu of regular payment of insurance premiums. A good health insurance policy is usually comprehensive in nature and will cover a vast range of illnesses and medical emergencies, though the exact extent of coverage may vary from provider to provider and from plan to plan. It is always advisable to do thorough research before zeroing in on a health insurance policy by comparing the scope of health coverage provided by each insurer along with other features. Given the increasingly high costs of medical treatment and a constantly worsening global health scenario, an increasingly large number of working professionals are opting for health insurance policies. Many employers even provide mandatory health coverage to their employees as part of the compensation package.

The Tax Saving Benefits of a Health Insurance Policy

Section 80D of the Income Tax Act 1961 lists various instances in which tax benefits accrue to holders of health insurance policies. In fact, it would not be inaccurate to say that this section encourages citizens to secure themselves and their families with health insurance policies.  Section 80D further has two sub-sections that provide for tax-benefits under special circumstances. Below, the tax-saving benefits of health insurance policies under section 80D of the Income Tax Act are explained in detail and in simple terms.

Section 80D
When you buy a health insurance policy, you are required to pay a monthly or annual premium on it. Under section 80D of the Income Tax Act, the premium paid for a health insurance policy is eligible for a deduction of up to Rs 25,000. A good family health insurance policy will usually cover you, your spouse, and your dependent children. (non-dependent children are usually not covered under most plans) however if you also opt for insurance coverage for your parents, you can claim a deduction of up to Rs 50,000 if your parents are above 60 years of age. In case the taxpayer is above 60 years of age and is also paying a premium on the health insurance policy of his/her parents besides their own, the maximum tax deduction, in this case, goes up to Rs 1 Lac. However it needs to be borne in mind that these deductions are eligible only if the premium is paid to the insurer through non-cash mode. Fortunately most health insurance policies today are digital-payment friendly and one shouldn’t encounter any trouble in paying one’s premium through net banking, digital wallets, or debit/credit cards.

Section 80DD
Section 80DD of the Income Tax Act deals specifically with tax benefits for people with disabilities. If you are a person with a disability or have a dependent family member with a disability, you can claim tax benefits on the expenses for their maintenance or treatment up to a maximum of Rs 75,000. In case you or your dependent family member has a disability of over 80%, the deduction goes up to INR 1.25 Lacs.

Section 80DDB
Section 80DDB provides for a tax deduction on the expenses incurred for treatment of certain critical illnesses such as cancer, AIDS, Parkinson’s, neurological diseases such as dementia, etc.  A doctor’s certificate is necessary to avail tax benefits under this section.

Further, the tax benefits of health insurance policies are eligible on all kinds of health insurance policies. Insurers often sell a wide basket of insurance plans in the market such as mediclaim plans, family floater plans, critical illness plans, and so on. Each plan is tailored to different kinds of customer’s needs. Often customers can get confused between the various plans. However, while purchasing these plans, an individual may rest assured that the tax benefits under section 80D would be applicable to all kinds of health insurance policies.

Conclusion

The world is in the middle of battling a pandemic that is spreading with alarming speed. Those of us living and working in Indian cities also have to contend with a number of other man-made environmental emergencies such as the alarming level of air pollution and poor air quality that has turned our cities into veritable gas chambers. At the same time, the cost of medical treatment has been continuously on the rise. In these solemn circumstances, one is more likely to be forced to contend with an unforeseen health emergency than at any other time in the past. Therefore it makes sense to have a health insurance policy to secure oneself and one’s family. On top of it, given the various tax-saving benefits of health insurance policies, it can even be a crucial tool in one’s financial planning toolkit. As the financial year 2020-21 draws to a close in March, it is important to pay attention to various instruments that help in better tax management and financial planning. As any financial planner will tell you, tax-saving is a crucial, but sadly, oft-neglected other half of wealth creation. A leaky bucket is hard to fill. In the same way, it is hard to create wealth if one is not prudent about managing one's expenses.

Disclaimer:  The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

Subject to change in tax laws.
HDFC ERGO General Insurance Company Limited. Registered & Corporate Office: 1st Floor, HDFC House, 165-166 Backbay Reclamation, H. T. Parekh Marg, Churchgate, Mumbai – 400 020. Trade Logo displayed above belongs to HDFC LTD and ERGO International AG and used by HDFC ERGO General Insurance Company Limited under license. For more details on the risk factors, terms and conditions, please read the sales brochure/prospectus before concluding the sale. UIN: my:health Suraksha HDFHLIP21473V052021. IRDAI Reg. No.146 CIN: U66030MH2007PLC177117.

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