For every individual, money-savings is a crucial aspect of life. Particularly when it is about saving taxes, every individual looks for ways to reduce tax liability. You can buy term insurance as well to avail tax benefits. Along with getting life cover, you can also avail term insurance tax benefits. However, there are various aspects related to term insurance benefits in income tax that you should be aware of.
What is Term Insurance?
Term insurance, being the simplest type of life insurance policy, provides life cover to an individual for a certain period in return of regular payment of a specific premium. In layman terms, if the life insured dies during the policy period, the policy nominee will receive a death benefit as defined in the policy inclusion terms.
A term insurance plan is highly affordable, and you can also receive additional benefits by including add-ons/riders in it. You should also know that pure term insurance has no cash value, i.e., it does not provide any survival benefit. However, you can get many other benefits, like term insurance tax benefits, by investing in a suitable plan.
Read More: What is Term Insurance & what are its primary features?
Tax Benefits of Term Insurance Plan
There is not just one but several term insurance tax benefits that you can avail when you buy a term plan. These benefits help you save money on the tax outgo while ensuring your loved one’s financial future.
Let us take an in-depth look at the term insurance tax benefits to answer various related questions.
Section 80C
The most basic term insurance tax benefits that any Indian taxpayer can avail falls under the purview of Section 80C of the Income Tax Act, 1961. In fact, many people think of this Section as the most popular tax-saving tool.
Under this Section, you can get term insurance tax benefits of up to Rs. 1.5 Lakh for the premiums paid for buying the plans. A crucial aspect that you should know about is that the upper limit of tax deductions available under this Section also includes tax benefits on investments in PPF (Public Provident Fund), tax-saving Fixed Deposits, and several other tax-saving instruments.
You can maximize term life insurance tax benefits by investing in a substantial life cover for yourself and benefit your family members in the long run.
Significant Facts Related to Term Insurance Tax Benefits U/S 80C
1. The annual premiums you pay for a term insurance plan must not exceed ten percent of the chosen sum assured. If it does exceed otherwise, term insurance tax benefits under Section 80C will be applied proportionately.
2. For term insurance plans issued before March 31, 2012, the term insurance benefits in income tax are applicable if the annual premium is under twenty percent of the sum assured.
You can maximize term life insurance tax benefits by investing in a substantial life cover for yourself and benefit your family members in the long run.
Significant Facts Related to Term Insurance Tax Benefits U/S 80C
1. The annual premiums you pay for a term insurance plan must not exceed ten percent of the chosen sum assured. If it does exceed otherwise, term insurance tax benefits under Section 80C will be applied proportionately.
2. For term insurance plans issued before March 31, 2012, the term insurance benefits in income tax are applicable if the annual premium is under twenty percent of the sum assured.
Section 80D
Section 80D mainly allows tax deductions on the premiums paid for health insurance. However, it also provides term insurance tax benefits, though in an indirect manner.
You can avail term insurance tax benefit under 80D if you have opted for health-related riders, like Critical Illness cover, Surgical Care cover, and similar others. In other words, you can maximize tax savings with your term insurance premiums by opting for these riders while also getting health insurance cover.
By opting for Critical Illness Cover with term insurance plans from Max Life Insurance, you can avail term insurance tax benefit under 80D.
Section 80D mainly allows tax deductions on the premiums paid for health insurance. However, it also provides term insurance tax benefits, though in an indirect manner.
You can avail term insurance tax benefit under 80D if you have opted for health-related riders, like Critical Illness cover, Surgical Care cover, and similar others. In other words, you can maximize tax savings with your term insurance premiums by opting for these riders while also getting health insurance cover.
By opting for Critical Illness Cover with term insurance plans from Max Life Insurance, you can avail term insurance tax benefit under 80D.
Age Description |
Premium Paid For |
Upper Limit to Term Insurance Tax Benefits u/s 80D |
|
|
Self, Spouse, and children (dependent) |
Parents |
|
When all the covered individuals are under 60 years of age |
Rs. 25,000 |
Rs. 25,000 |
Rs. 50,000 |
When your parents are above 60 years of age |
Rs. 25,000 |
Rs. 50,000 |
Rs. 75,000 |
When both you and your parents are above the age of 60 |
Rs. 50,000 |
Rs. 50,000 |
Rs. 1,00,000 |
Section 10(10D)
Other than the term insurance tax benefits that the life insured can avail, he/she and the family members can also save money with tax exemptions. This is covered under Section 10(10D).
In simpler words, the death benefit or maturity benefit received under the term insurance policy is tax-exempt. This is also subject to various conditions provided therein. In general, these term insurance tax benefits have no upper limit. It means the entire amount that you or your loved ones will receive under the term plan is exempt from taxes.
As a term insurance policyholder, you should know that term insurance tax benefits under Section 10(10D) is also subject to certain conditions. It states that the maturity or death benefits under a term plan are non-taxable if the premium payable during the policy period does not exceed 20% of the pre-defined sum assured.
Tax Benefits on Term Insurance Riders
Various term insurance riders are offered by insurance companies to provide supplementary coverage. However, their benefits are not limited to strengthening a term insurance policy beyond its core features.
Depending on the rider you select with a term plan and related conditions, you can avail additional term insurance tax benefits. Here are a few ways in which term plan riders can make you avail additional term life insurance tax benefits:
1. Critical Illness rider, when added to your term plan, makes you eligible for tax deductions under Section 80D.
2. Riders like Return of Premium, when chosen at the time of buying a term plan, increase its premium, thereby enabling you to save more money under Section 80C. You can check how the premium varies with the inclusion of riders using an online calculator.
Frequently Asked Questions (FAQs)
Q. What are term insurance tax benefits?
A. Term insurance tax benefits are available to the policyholders in the form of deductions and exemptions. These benefits are covered under the Income Tax Act, 1961, in India.
Q. How can I maximise term insurance tax benefits?
A. You can avail maximum term insurance tax benefits by investing in a suitable plan that fits your needs, along with many other tax-saving instruments. You can also consult a tax advisor about it in detail.
Q. Should I buy a term plan based on the term insurance tax benefits only?
A. Your decision to buy a term plan should not be solely based on the term insurance tax benefits you can get. Rather, you must consider various other factors like the adequate sum assured, affordability, fulfilment of your specific needs, while buying a term plan. Alongside, you should avoid common mistakes people make while buying a term plan.
Q. Can I get term insurance tax benefits if I stop paying the premiums?
A. No. The validity of a term insurance plan is essential to allow you to avail term insurance tax benefits. It means you are not allowed to skip paying the premiums to save income tax.
Q. What will happen on not paying the premium on time?
A. If your term insurance premium falls overdue, you get a grace period to pay it up. Once the premium is paid within this period, there is no risk to any benefits related to the policy, including the term insurance tax benefits.
ARN: Oct22/Bg/12N
Disclaimer:
**Healthy non-smoking male, 24 years, 2 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V02)
*^Savings mentioned are indicative of the maximum premium difference when the same plan/variant is bought offline.