Term Insurance Tax Benefits 

For every person, money-savings is an important aspect of life. Specifically, when it is about saving taxes, every person looks for different ways to reduce tax liabilities. In India, many investment and insurance products offer a wide range of benefits on tax. One such product available in the industry is Term Insurance Plan.

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What is Term Insurance? 

Term insurance, being the basic type of life insurance policy, offers coverage for a specific number of years. In case the policyholder dies during the policy duration the insurer pays the death benefit to the nominees of the insured. And the premium paid by the policyholder for a term insurance plan is eligible for tax exemption benefits u/s 80C of the IT Act, 1961. The limit of term insurance tax benefit is up to Rs 1.5 lakh on the premium paid for self, spouse, and children during a fiscal year.

The premium paid for a term insurance plan along with the death benefits is eligible for tax-saving benefits in India. Under Section 10(10D) the maturity amount is also tax-free if the premium cost does not exceed 10% of the sum assured. A term insurance policy offers coverage at a relatively lesser premium. For example, A 27-year-old non-smoker can get a 30-years term insurance plan at a monthly premium of Rs.576 only. 

However, a term insurance policy should not only be considered as an efficient tax-saving investment tool. The coverage benefits should also be taken into consideration along with the tax benefits.

Tax Benefits of Term Insurance Plan 

There is not only one but a number of term insurance premium tax benefits that one can avail of while buying a term plan. All these benefits help you save money on the tax while making sure your family’s financial future. Below are the term insurance tax benefits that you can claim during a financial year.

  1. Term Insurance Tax Benefits under Section 80C

    The simplest and basic term insurance tax benefit that any Indian taxpayer can opt for falls under the purview of Section 80C of the ITA, 1961. This section is also considered the most popular tax-saving tool by many people. 

    As per section 80C of the Indian Income Tax Act, a taxpayer is eligible for tax exemption on the premium paid towards a term life insurance policy. The limit to claim tax benefits in a year is kept up to Rs. 1.5 lakh. Term life insurance premium paid for your spouse and children is also eligible for tax exemption. One of the crucial aspects of this benefit is that the upper limit of tax deductions applicable under this section also involves tax benefits on investments i.e., in Public Provident Fund (PPF), tax-saving FDs, and various other tax-saving tools. 

    You can easily maximize term insurance premium tax benefits by investing in an extended life cover for yourself and helping your loved ones in the long run. 

    Important Facts Related to Term Insurance Tax Benefits Under Section 80C 

    • The maximum amount that can be claimed u/s 80C is Rs. 1.5 lacs annually and the limit involves other entitled investments also.

    • It is valid only on the term life insurance policies that were issued before 31st March 2012.

    • The annual premium payable for a term plan must not be more than 10% of the selected sum assured amount. If it does exceed, term insurance tax benefit u/s 80C will be valid proportionately. 

    • If the premium amount payable doesn’t exceed 20% of the sum assured amount for plans purchased before 1st April 2012, the life assured is eligible to claim a deduction on tax u/s 80C 

    • If in case a term plan is issued on or after 1st April 2012, tax deductions can only be claimed if the yearly premium does not exceed 10% of SA 

    • If a person is suffering from a disability listed u/s 80U or from any illness listed u/s 80DDB, the tax-benefit limit is increased to 15% of the total sum assured.

    • Also, u/s 80C(5) if the insured voluntarily surrenders the term insurance policy or terminates it within 2 years from the date of commencement, no tax benefits will be provided.

    *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

  2. Term Insurance Tax Benefits Under 80D 

    Ideally, Section 80D majorly allows deductions on the premium amounts paid for health insurance. But since various insurers offer a term plan with a critical illness rider benefit, additional benefits can be claimed u/s 80D. In the case of an individual term insurance plan, the life assured, their partner, dependent children, and parents can opt for this tax benefit. 

    Important Facts Related to Term Insurance Tax Benefits Under Section 80C

    • Tax Deductions can only be availed if the amount doesn’t exceed Rs. 25000

    • If the life insurance plan is taken on the behalf of the parents, additional tax deductions of Rs. 25000 can be availed 

    • In case if the parents are senior citizens, the maximum sum that can be claimed u/s 80D is Rs 50000. 

    In order to avail of a term insurance premium tax benefit u/s 80D, one is required to have a critical illness cover or other illness-related coverages along with their base term plan. 

Income Tax Benefit u/s 80D

Age (in years) Premium Amount (in Rs.) Upper limit (in Rs.)– Tax benefit under section 80D
For parents For Self, children (dependents) and spouse
Less than 60 years (for all covered individuals) 25000 25000 50000
Above 60 years (for parents) 50000 25000 75000
Above 60 years (for you and your parents) 50000 50000 100000

  1. Term Insurance Tax Benefits under Section 10 (10D)

    Not only the term insurance premiums, but you can also claim tax benefits on the returns under section 10 (10D) of the Income Tax Act. The death benefit given to the beneficiaries or the maturity amount is fully exempted and there is no upper limit. In simple words, the maturity benefit or death benefit received under the term insurance plan is exempted from taxes. It means the whole amount that you and your family member will get under the term plan is exempted from taxes. 

    Term insurance tax benefit also extends to the maturity amount is taxable under Section 10 (10D) if the policy premium exceeds 20% of the actual sum assured during the policy term. However, this hardly happens as the sum assured in a term insurance policy is usually higher than the yearly premium.

    Important Facts Related to Term Insurance Tax Benefits Under Section 80C

    Term insurance premium tax benefit u/s 10(10D) is also subject to certain T&Cs. The below table illustrates the conditions in which the maturity amount is exempted and taxable: 

Income Tax Benefit u/s 10(10D)

Policy Issue Date Condition Maturity Amount
Any  Payout to nominee after policyholder’s death  Exempted 
Before 1st April 2003  No condition  Exempted 
On or after 1st April 2003 to 31st March 2012 Premium paid exceeds 20% of amount of sum assured  Taxable 
On or after 1st April 2002 to 31st March 2012 Premium paid up to 20% of amount of sum assured  Exempted 
On or after 1st April 2012  Premium paid exceeds 10% of amount of sum assured  Taxable 
On or after 1st April 2012  Premium paid up to 20% of amount of sum assured  Exempted 

Best term Insurance Plans in India

Tax Benefits on Term Insurance Riders 

Different term insurance riders are offered by insurers to provide supplementary and enhanced coverage. Depending on the type of rider you choose with a term plan, you can opt for additional term insurance tax benefits. Following are the various ways in which a term insurance plan rider can make you avail extra tax benefit on term life insurance 

  • Critical illness Rider, when attached to your term plan, makes you7 eligible for deductions u/s 80D

  • Riders such as ROP (Return of Premium) when selected during term plan purchase, increase the premium amount. Thus, it saves a lot of money u/s 80C. 

Five things to know before buying Term Plan Five things to know before buying Term Plan

Conclusion

Though a term insurance policy offers tax exemption it is suggested that you consult a financial advisor. This will enable you to make an informed decision because the benefits may vary as per the tax brackets.

In addition to the tax benefits of term insurance, while selecting a suitable term insurance plan you can compare different term insurance quotations online and see what all options in terms of premium, coverage, policy term, riders, and payment modes will work for you.

Written By: PolicyBazaar
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