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Term life Insurance

What are term insurance tax benefits?

There are multiple ways to save on income tax. Several exemptions and deductions are available under various sections of the Income Tax Act. Taxpayers can save their taxes by investing in numerous such avenues that qualify for deductions and exemptions. One such tax-saving tool is term insurance. Investing in term insurance offers life cover, and you can enjoy term insurance tax benefits as well.

What are term insurance tax benefits? 1

What is term life insurance?

As the name suggests, term life insurance is a form of a life insurance plan for a fixed term. It provides a high life cover or sum assured at a considerably low premium price. In case of the policyholder’s demise during the policy tenure, the insurance coverage amount is paid to the policy beneficiary. Term insurance is a pure protection plan and hence, only provides a death benefit. It does not offer maturity benefit if the policyholder survives the policy term.

Now let’s know about term insurance tax benefits:

Term insurance tax benefits under Section 80C

Section 80C of the Income Tax Act offers a tax deduction of Rs 1.5 lakhs for several investment avenues such as PPF, ULIP, ELSS, EPF and payments made towards children’s tuition fees, home loan EMIs, life insurance premiums, amongst others. Therefore, under Section 80C of the IT Act, the premiums paid for term insurance are eligible for tax exemption up to Rs 1.5 lakhs. This is one of the most popular tools used by taxpayers for saving taxes.

What are the various conditions for term insurance tax benefit under Section 80C?

  • The premiums paid annually should not exceed 10 percent of the sum assured. In case the premiums surpass 10 percent, then the deductions get applied proportionately.
  • The policies issued before March 31st, 2012; the deduction is applicable only if the annual premium does not go beyond 20 percent of the sum assured.
  • Suppose the policy is voluntarily terminated or surrendered before two years; since the policy started, then according to Section 80C(5), the policyholder will not receive any Section 80C term insurance tax benefits for the premiums paid.

Term insurance tax benefits under Section 10(10D)

  • According to Section 10(10D) of the Income Tax Act, the pay-out amount or the insurance coverage received as death benefit upon the death of the policyholder or maturity benefit if the insured survives the policy term or surrender of policy is entirely tax-free.
  • In case of any bonuses received along with such amount, then that is also exempted under Section 10(10D) of the Income Tax Act.

What are the different conditions for term insurance tax benefits under Section 10(10D)?

    • Under Section 10(10D), term insurance tax benefits are applicable if the premium is below 10 percent of the insurance coverage amount or at least 10 times the premium amount.
  • In case the pay-put is more than Rs 1 lakh, and the PAN of the policyholder is available with the insurer, then a TDS of 1 percent is applicable.

Term insurance tax benefit under Section 80D

Usually, Section 80D is earmarked only for health insurance policies. This section offers a tax deduction on the health insurance policies taken for either self, spouse, children or parents having specific limits for deduction according to different conditions.

Though certain term insurance plans offer tax benefits under Section 80D, under such plans, the policyholder has to opt for a rider related to health such as surgical care, critical illness, hospital care, and their term policy.

What are the conditions for term insurance tax benefits under Section 80D?

  • Under Section 80D, tax deductions can be availed for an amount not exceeding Rs 25,000.
  • In case you have bought an insurance policy for your parents, you can enjoy an additional tax exemption of Rs 25,000.
  • If parents fall into the senior citizens’ category, then the exemption limit goes up to Rs 50,000.

Overall, term life insurance is an inevitable choice for today’s lifestyle; however, it is a valuable option for tax saving purposes as well. Taxpayers should carefully choose policies or riders to avail tax exemption under various sections of the Income Tax Act. If you want to know more details on term insurance tax benefits, visit and speak to their insurance experts to better understand.

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