Term Insurance Tax Benefits

For every person, saving money is an important aspect of life. Specifically, when it comes to saving taxes, every personlooks for different ways to decrease liabilities on tax. You can purchase term insurance as well to avail benefits on tax. Along with receiving life cover, you can also opt for a term insurance tax savings benefit. However, there are different aspects associated with term insurance advantages in income tax that one should be fully aware of. 

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What is Term Insurance? 

Term insurance is a type of life insurance that 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 that you pay 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 u/s Section 10(10D) and 80C

Selecting term insurance gives you benefit on tax u/s 80C and 10(10D) of the ITA, 1961, subject to the stated provisions. You can claim a deduction of up to Rs.1.5 lacs yearly on the paid premiums under section 80C. Whereas, the death benefit of your term plan is exempted from income tax under section 10(10D). 

Below are the term insurance tax benefits that you can claim during a financial year.

  1. Term Insurance Tax Benefits under Section 80C

    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.

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

    Term plans issued after 1st April 2012, get tax deduction benefits limited to 10% of the sum assured.  However, 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 terminates it within 2 years from the date of commencement, no tax benefits will be provided.

  2. 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.

    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.

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

Tax Benefits on Term Insurance Riders 

Various term plan riders are offered by insurers to provide additional coverage. However, their advantages are not restricted to strengthening a term plan yonder its main features. 

Based on the rider you choose with a term insurance plan and associated conditions; you can opt for additional tax benefits of term insurance. Here are some ways in which a term insurance plan riders can make you avail extra term plan tax benefits. 

  • Critical illness rider, when attached to the base term insurance policy, makes you eligible for tax deductions u/s 80D

  • Riders such as TROP, chosen while purchasing a plan, increase its amount of premium and enables you to save money u/s 80C. Using an online calculator, you can check the premium rates that vary with the inclusion of riders. 

Best term Insurance Plans in India


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 you select 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.

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