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Are Term Insurance Payouts Taxable?

dateKnowledge Centre Team dateFebruary 15, 2021 views165 Views
Are Term Insurance Payouts Taxable?

Term Insurance is a policy which stabilizes security to one’s family in their absence. The insured has to pay a certain amount of premium from time to time. This policy provides financial protection to his/her family with other returns in case of the insured’s death.

A term plan can be taken up to provide security to the insured’s family in death and uncertain events. Term insurance plan secures the insured’s family and covers up the chances of risk and failing in fulfilling financial responsibilities. In case of accidental death and end of the term period, additional returns are provided to the insured or the insured’s family.

Looking at the financial payments, dependants, and liabilities, one can decide what plan they want to choose with the period. Considering the years and age of insured etc. he/she can opt for a plan that best suits their future family requirements.

What is term insurance, and how does it benefit the life of an individual?

Term insurance is a life insurance policy where the insurer provides credit at the end of maturity term to the insured or their family. It is a contract between the insured and the insurer where the insured has to pay premiums regularly, and the insurer provides extra financial credit in return. This policy can range from 10 to 30 years, depending upon when the person is applying for it.

In a term insurance policy, the benefits depend upon the term period and the premium amount. The customers can go through all types of term plans and consider each one before signing up for a policy. If the term plan exceeds successfully, then there are multiple benefits to the insured and their family along with the assured payout.

In this policy, the premiums can be paid monthly, quarterly, etc., the premiums are affordable and flexible to pay in particular periods set according to the contract. It comes with additional tax benefits and reasonable prices when it comes to purchasing the policy. In case of accidental death or early death, the insured’s family can claim the plan’s death benefits.

Benefits of a term insurance plan:

  • Secure future for the family of insured
  • Covers up the loss in the absence of insured
  • Acts as a contributing factor in fulfilling financial responsibilities.
  • Provides benefits to the family of insured
  • Claim tax benefits up to Rs. 1.5 Lakh in a year
  • Allows to take up more than one term insurance
  • Guaranteed death benefit
  • Critical illness coverage
  • Additional riders
  • Flexible payment of premium
  • Higher tax benefit of Rs. 50,000, in case you avail the life insurance policy in your senior citizen parent's name

Important points to consider before buying a term plan in India

Age factor

  • Current loans and other insurance policies
  • Current income and expected future income
  • Age of retirement
  • Duration of term plan
  • Benefits from the term plan (death benefits, tax benefits, etc.)

Additional benefits at the end of the term

  • Current expenses and expenses for the future
  • Expenses for major events like weddings, education, medical costs, etc.
  • The amount of premium and how they should be paid.

Additional benefits at the end of the term

  • Current expenses and expenses for the future
  • Expenses for major events like weddings, education, medical costs, etc.
  • The amount of premium and how they should be paid.

The period between each premium:

  • Number of years before the maturity period
  • Mode for payout
  • Growing dependants
  • Growing financial responsibilities
  • Liabilities to be paid off
  • Securing future health conditions
  • Other financial responsibilities

Types of term insurances:

  • Level term plans:

    In this policy, the premium remains intact throughout the maturity period and even at the time of maturity. It doesn’t add any additional payments/ credit. This policy is suitable for those who prefer simple insurance without any frills. It is considered as the most common policy taken up by people.

  • Increasing term plans:

    In this policy, the premium keeps increasing from time to time, along with the sum assured. People who guess that their expenses and financial responsibilities keep increasing from time to time prefer this policy.

  • Decreasing term plans:

    In this policy, the sum assured keeps decreasing from time to time. People who have less financial responsibilities prefer this policy or those who have less or no dependants prefer this plan.

  • Return of premium plan:

    In this policy, if the customer outlives the policy term, they are paid with all their premiums at the time of maturity. A term plan with return of premium is considered to be the most profitable as all the money is returned along with additional benefits.

Are term insurance payouts taxable? - Header - 2

According to section 80C of the income tax act, a taxpayer is eligible for tax exemption on the premium paid towards a term life insurance policy. Up to 1.5 lakh rupees can be claimed by an insured per year. The term insurance premium paid for the insured’s spouse, and children is also eligible for tax benefits. But this is only eligible for those who have issued theirs before 31st march 2012. People who have issued their policies after 1st April 2012 will have 10% tax deduction benefits.

  • In case of death of the insured, the payouts received by the insured’s family will not be counted as taxable income, and the family doesn’t have to pay any taxes for it. At the end of the term, when all the premiums are paid regularly, the insured can claim all the amount without paying any tax, and the amount will be tax exempted.
  • In case of death of the insured, the payouts received by the insured’s family will not be counted as taxable income, and the family doesn’t have to pay any taxes for it. At the end of the term, when all the premiums are paid regularly, the insured can claim all the amount without paying any tax, and the amount will be tax exempted.

Canara HSBC Oriental Bank of Commerce Life Insurance offers life insurance policies which offers a range of benefits. The bank provides life insurances as the best form of investment. The customers can check with the term insurance policies and their benefits and their comfortable payments and payouts. The bank provides different term insurance plans, each featuring various elements and benefits.

  • The tax benefits claimed can be used to pay off additional debts and liabilities. Depending upon the premiums paid, the payout benefits can be higher if the insured has signed up for a large amount. Even for smaller premiums in a short period, the tax benefits will act as a bonus to the policyholder. Apart from that, the tax exemptions on the premium in case of the insured’s death, the death benefits can be claimed by his/her family without having to pay any taxes.
  • The term insurances here have additional death and tax benefits and long term health expenses covering the multiple plans available with each having their benefits. There is also accidental death coverage. Claiming two insurances can secure the dependants of the insured. Children, grandchildren and financial responsibilities related to them can be covered. In the case of critical illness, the expenses can be paid without having to struggle for credit.

Canara HSBC Oriental Bank of Commerce Life Insurance offers term insurances online, and their in-depth knowledge in insurances brings out the best plans for investing and insuring credit. After going through all the plans and filling in your details, the customer can immediately start with the plan and pay premiums online. The customer can select the premiums and periods online and go through the benefits of the plan.

What are the term insurance tax benefits?

As per section 80C of the Indian income tax act, an insured is eligible for the tax exemption on the payout received at the end of the term period. The limit for claiming tax benefits per year is up to 1.5 lakhs. The premium paid for the insured’s family and spouse is also tax exempted.

Under section 10D of the income tax act, the insured can claim tax benefits. According to this, the death benefit in case of accidental death, the maturity amount should be fully exempted without imposing any tax on the amount.

The tax benefits are mostly exemptions from paying taxes on premiums and additional payments in critical health conditions, injuries and losses. These vary from each plan depending upon the tenure, premium and payouts. The tax benefits are a huge reason to invest in a term insurance plan as the credit saved in this policy will be tax-free.

Buy a term insurance plan as it is one of the most efficient ways of investing money for the future. This way, the loans, debts and other liabilities left behind by the insured can be cleared up without trouble. Term insurance is the most commonly used policy, and it best suits people who want to buy a policy without any frills or loss. It is an easy credit saving facility to secure one’s financial responsibilities regarding health, family, etc.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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