Term Insurance: Tax Benefits under Section 80D

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What is Term Insurance? 

Term insurance is a product that offers complete protection for a given term as long as the life insured pays the required premiums. In case of an unexpected death, the term insurance plan provides financial protection for the family members who are direct nominees of the life insured. Apart from financial protection to the policyholder’s family, this plan also provides tax benefits to the policyholders. As a term insurance policyholder, you must be thinking that term insurance comes under which section? Let’s understand this in detail for your smooth understanding. The premiums paid towards a term insurance policy are eligible for tax benefits under section 80D.

What is Section 80D of the IT Act and What It Covers? 

A policyholder can enjoy the tax benefits under various sections of the income tax laws formulated by the Indian Government. As per income tax law, the policyholder can claim tax deductions up to Rs.1.5 lakh yearly for the paid premiums. Additionally, the policyholder is exempt from deductions following the income tax law for the death benefit paid out under the term policy; however, the sum assured has to be more than the premium paid annually.

The policyholder with a term insurance plan can avail of the tax benefits under section 80D. If the policyholder has availed a term insurance policy with health riders, then he/she can claim the premiums on his/her health riders under Section 80D. However, the policyholder needs to claim the remaining premium amount under other sections of the Income Tax Act.

How to Claim Term Insurance Tax Benefits Under Section 80D of the IT Act 

Can you claim a term insurance plan under section 80D? The Answer is Yes. Let’s understand how to claim term insurance plan tax benefits. Term plan comes with riders which are added to your standard term plan. These riders help you to claim the tax benefit of term insurance u/s 80D. For example, you can claim deductions on the critical illness rider benefit you purchase with your term plan as the 80D section provides tax exemptions for these medical bills. It is always suggested to use a term insurance plan calculator to check the coverage amount you require. If you go for riders, you should always check the added exemption you receive for some of them u/s 80D.

The insured can claim term insurance benefits when he/she files his/her returns for tax deductions under Section 80D at the end of each assessment year. Additionally, the policyholder can also claim deductions under section 80D, if he has/she opted for a health rider such as critical illness, hospital cash, surgical care rider along with his/her term insurance.

Protect Your Family Protect Your Family

Some of the conditions under which the policyholder can make claims under section 80D are as follows.

  • If the policyholder has chosen a critical illness term policy for him/her and his/her family (including his/her spouse and children). If the life insured along with his/her family member is below 60, then he/she has met the criteria for a tax deduction of up to Rs 25,000.

  • If the policyholder has opted for a similar and separate term policy for his/her parents and the life insured's parents are above 60 years of age, then the individual is eligible for tax deduction up to Rs. 50,000.

The limit of deduction is illustrated in the below table.

Premium Paid For  Case I – Self Below 60 Years & Parents Below 60 Years Case II –  Below 60 Years & Parents Above 60 Years Case III – Self Above 60 Years & Parents Above 60 Years
Self, spouse, and dependent children Rs. 25,000 Rs. 25,000 Rs. 50,000
Parents Rs. 25,000 Rs. 50,000 Rs. 50,000
Upper Limit for Tax Benefit – Term Insurance  Rs. 50,000 Rs.75,000 Rs. 100,000

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

The individual must consider the below clauses related to the deductions.

  • Suppose the individual's term insurance policy is issued on or after April 1, 2012. In that case, a tax deduction is applicable only for the total premium amount up to 10% of the maximum sum assured.

  • Suppose the applicant's term insurance plan is issued on or before March 31, 2012. In that case, a tax deduction is applicable only for the total premium amounting to a maximum of 20% of the sum assured.

  • Suppose the individual is suffering from any physical disabilities or critical illness. In that case, a tax deduction is applicable if the policyholder has paid premiums amounting to 15% or more of the total sum assured. The above clause is again applicable for an insurance plan that has been issued on or after April 1, 2013. Moreover, an individual of the Hindu Undivided Family (HUF) can also avail of the above tax benefits under this section.

Eligibility Criteria to Claim Tax Benefits 

Deductions can only be claimed by persons and a HUF i.e., Hindu Undivided Family on the premium amount being paid for their term insurance plans or on the benefits received by them. 

What are the Term Insurance Tax Benefits Under Section 80D?  

For individuals who are constantly searching for financial products that will enable them to save tax and enhance their savings, buying a term insurance plan can solve their purpose. Term insurance plan is one of the financial products that offer tax benefits and offer life cover to the policyholder and provide protection and financial security to the family. Some of the term insurance tax benefits under Section 80D are as follows.

  1. Tax Exemptions on Premiums Paid

    Individuals are encouraged to buy term plan as an investment vehicle, and for years, insurance premiums and policies have been eligible for tax deductions from the individual’s net income. Term insurance plans qualify for the tax deductions and exemptions and ensure that the policyholder benefits from paying term insurance premiums regularly. For example, policyholders with life insurance premiums up to 1.5 lakhs per annum have met the criteria for deductions from taxable income according to the Income Tax Act. Thus, the policyholder with a term insurance plan can save taxes from achieving his/her long-term goals and dreams.

    Why Buy Term Life Insurance from Policybazaar Why Buy Term Life Insurance from Policybazaar
  2. Tax Exemptions on Insurance Pay-out

    If the policyholder dies during the policy term, the insurer ensures that the term insurance policy is converted to cash. Moreover, the family members who receive the insurance pay-out need not grapple with tax deductions levied by the income tax department. Thus, the life insured's family can utilize the bulk of the insurance pay-out without any nuisances of paying tax. Furthermore, the insurance pay-outs, irrespective of higher amounts, are not taxed, making the policy pay-outs completely tax-free, thus ensuring that the life insured's family could realize their dreams without any financial constraints.

  3. Choosing either a Single Premium or a Regular Premium Policy

    The policyholder can opt to pay a single large sum as a term insurance premium. Still, regular policy payouts have added advantages compared to the upfront single premium payment when it comes to tax savings and other benefits. The policyholders with premiums paid up to Rs.1.5 lakhs every year are eligible for the tax deduction. In contrast, premiums paid higher than Rs.1.5 lakhs are liable to be taxed and do not qualify for tax benefits. The policyholders with single premium payments are taxed if the sum exceeds the limit, and the individual will have to bear the burden of taxes on the remaining premiums paid. 

  4. Financial Security

    A term plan ensures that the policyholder’s family will be financially safe and continue to chase their long-cherished dreams even in the absence of the life insured. The term plan's tax benefits are attractive, making it the most preferred tax-saving instrument in the financial industry. 

    The policyholder with a regular term plan premium can ensure that he/she will have tax benefits during the policy term and that his/her family will benefit from regular pay-outs if encashed otherwise.

Summing Up

The individuals with a term insurance plan aim to secure the future of their dear ones and put them well on the path to attaining their life goals. The individuals can claim tax deductions on term insurance premiums paid, and their nominees or family members can claim tax exemptions on the death pay-out under various sections of the income tax laws. The main question that arises in the consumer’s mind is: term insurance comes under which section?

The individual can stand to gain from Section 80D of income tax law that provides tax benefits and claims for specific add-ons that offer cover to medical expenses related to critical illnesses or physical disabilities.  A term insurance plan can thus offer peace of mind to the policyholder and secure the individual’s family from financial hardships.

*Tax benefit is subject to changes in tax laws. *Standard T&C Apply

** Discount is offered by the insurance company as approved by IRDAI for the product under File & Use guidelines

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

FAQ's

  • How can one calculate the income tax deductions?

    Ans. The policyholder can use the online income tax calculator tool to understand deductions related to his taxable income.
  • Who can avail of the tax benefits under 80D?

    Ans. Benefits of term insurance come under 80D can be availed by the policyholder and his/her spouse, dependent children, and parents.
  • What is the limit of tax deduction for senior citizens under 80D?

    Ans.  If the policyholder's parents are above 60 years of age, the limit of tax deduction is Rs.50, 000
  • What is the tax deduction limit for ordinary citizens under 80D?

    Ans. The individuals can avail of tax benefits for an amount not exceeding Rs.25, 000.
  • What are the rider covers that qualify for tax benefits?

    Ans. Term insurance add-ons such as critical illness rider, hospital care rider, surgical care rider, etc. can avail tax benefits.
  • Is it required to pay GST on term insurance u/s 80C?

    Ans. GST is charged as per the applicable rates on the premium.
  • Will the tax benefits be continued if I discontinue the term policy?

    Ans. Pay premiums to get term insurance tax benefits u/s 80C. The tax benefit is applicable on the total premium you pay in a fiscal year. In case you discontinue or fails to pay the premium, your term insurance plan terminates and your life coverage ceases to exist. The nominee will no longer get any type of financial benefit from the plan.

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