Are There Tax Benefits Associated With Newborn Insurance?

Making plans for a newborn's future is more than just arranging health insurance coverage. There are many other parents today who are interested in money protection, tax savings, long-term investment plans, and insurance for newborns and children. Read on to know about the different tax benefits that are linked to newborn insurance and the crucial aspects that you must consider when choosing an appropriate health insurance plan for your newborn.

Tax Benefits Available Under Child Insurance Plans

One of the biggest benefits of investing in a child insurance plan is the number of tax deductions that are provided in the various sections of the Income Tax Act.

Deduction on Premiums Paid

Under Section 80C, parents can claim tax deductions of up to ₹1.5 lakh annually on premiums paid towards child insurance plans. Many times, riders like waiver of premium riders qualify for tax deductions as well.

Tax-Free Maturity and Death Benefits

According to Section 10(10D) of the Income Tax Act, payouts received from life insurance policies are usually not subject to taxes at maturity, provided that certain conditions are met. In addition, death benefits received under the policy are completely tax-free.

Tax Benefit on Loans for Higher Education

Section 80E also allows tax deductions for parents who took loans from banks for their child's higher education with a child insurance policy as collateral. Interest earned on these loans is tax-deductible as long as the loan proceeds are used to pay higher education expenses for the child.

Tax Benefit on Fund Formation

Some child investment and insurance plans even enable you to establish a unique account for your kid's financial objectives, like education. Most of the time, however, the accumulated amount is meant for long-term objectives, and as such, isn't supposed to be cashed out before its time.

Tax Benefit on Tuition Fees

One more important tax saving benefit can be availed for paying tuition fees for a child's education under Section 80C. Up to ₹1,00,000 tax deduction can be availed by parents per year on tuition fees for up to two children.

The deduction does not apply to tuition fees in excess of the permitted level, however, and may not be eligible for further tax exemptions.

Factors to Consider While Opting for Newborn Health Insurance

Scope of Coverage

One of the most significant considerations to check on the newborn's health insurance plan is the insurance coverage provided. Certain insurance companies offer extra protection like vaccinations, coverage for certain diseases, and the cost of newborn hospitalisation. Parents should carefully understand what medical expenses are covered before purchasing the policy.

Policy Exclusions

Each health insurance policy has a particular list of exclusions that are not included within claims. Knowing the exclusions before starting treatment helps to prevent claim issues and/or confusion in an emergency situation.

Waiting Period of the Plan

The majority of health insurance policies for newborns are only activated after the child turns 90 days old. This means that in case a policy is taken out prior to or on the very day of the birth of the child, there might be a waiting period as well.

Scope for Customisation

Having health insurance that can be tailored to your needs in the future can be extremely useful. Healthcare needs can evolve as a child grows, and a flexible plan allows a family to increase or adjust coverage as their needs do.

Cashless Coverage

Additionally, parents should enquire about cashless treatment options at network hospitals in the health insurance plan. In times of emergency, cashless coverage would enable immediate medical care without needing to arrange upfront finances.

Network of Hospitals

A wider hospital network is another important consideration while selecting newborn insurance. In case of an emergency, the proximity to the hospitals might be a lifesaver. A comprehensive network coverage of hospitals can offer more convenience and quicker access to treatment.