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term-insurance-tax-benefits

Term Insurance Tax Benefits U/S 80C, 80D & 10(10D)

You can get a tax deduction of up to ₹1.5 lakhs under Section 80C for the premiums you pay towards your term insurance plan.

You can get a tax deduction of up to ₹1.5 lakhs under Section 80C for the premiums you pay towards your term insurance plan.

To save on tax, a variety of deductions and exemptions are available under the numerous sections of the Income Tax Act. Taxpayers can invest in different financial instruments to qualify for these deductions and exemptions. One such tax-saving instrument is term insurance. A term insurance plan is a pure protection plan that offers a life cover and death benefit to the nominees of the policy when the policyholder passes away. Apart from getting a life cover and numerous other benefits, the policyholder also enjoys tax benefits on buying a term plan.

Key Takeaways

  • Term insurance premiums qualify for tax benefits under Sections 80C, 80D, and 10(10D), helping reduce taxable income while securing financial protection.

  • Premiums up to ₹1.5 lakh per year are deductible, provided they don’t exceed 10% of the sum assured, ensuring tax-efficient financial planning.

  • Critical illness and hospital care riders offer tax deductions up to ₹25,000, increasing to ₹50,000 for policies covering senior citizens.

  • Death benefits or maturity proceeds are tax-exempt under Section 10(10D), ensuring financial security without additional tax burdens on the beneficiary.

  • Riders like accidental death or critical illness enhance coverage while providing tax benefits, making them a smart choice for securing your family's future.

Term Insurance Tax Benefits under Different Income Tax Sections

Generally, tax benefit on a term insurance plan is claimed under the following three (3) sections of the Income Tax Act:

Term Insurance Tax Benefit under Section 80C

You can get a tax deduction of up to ₹1.5 lakhs under Section 80C for the premiums you pay towards your term insurance plan. This Section offers a deduction for all the listed investments like PPF, EPF, ULIP, and ELSS, and payments like repayment of home loans, children’s tuition fees, life insurance premiums, etc.

Consider the below conditions to avail of term insurance tax benefits under Section 80C:

  • The yearly premiums paid should not exceed 10% of the sum assured. If it is over 10%, deduction is applied proportionately.
  • For policies issued before 31st March 2024, the deduction is applicable only if the yearly premium does not exceed 20% of the sum assured.
  • As per Section 80C(5), in the case of a voluntarily surrendered policy or a policy terminated two years from the inception, the policyholder won’t receive tax benefits on premium payments.

Calculate Your Income Tax here- Income Tax Calculator

How to Save Tax with Life Insurance | Canara

Term Insurance Tax Benefit under Section 80D

Section 80D ensures a deduction of up to ₹25,000 on premiums paid for term plans with a critical illness cover

However, some term insurance plans offer tax benefits under Section 80D. Policyholders who have opted for a health-related rider (such as Critical Illness, Surgical Care, or Hospital Care Rider) with their policy can avail of deductions under this Section.

Consider the following conditions for availing tax benefits on a term plan under Section 80D:

  • It can be availed for an amount that doesn’t exceed ₹25,000.
  • If you have taken an insurance policy for your parents, an additional deduction of up to ₹25,000 can be availed.
  • If your parents are senior citizens, the deduction limit goes up to ₹50,000.

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Term Insurance Tax Benefit under Section 10 (10D)

As per Section 10(10D) of the Income Tax Act, the sum assured received on maturity or surrender of a policy or upon the policyholder’s death is tax-free. Bonuses received with such an amount are also.

Conditions for term insurance tax exemption under this Section are:

  • Term plan tax benefit is applicable if the premium is less than 10 percent of the sum assured or the sum assured is at least ten times the premium.
  • If the payout exceeds ₹1,00,000, and the policyholder’s PAN is available, a TDS (Tax Deducted at Source) of 1% is applied.

Canara HSBC Life Insurance offers iSelect Smart360 Term Plan, a comprehensive protection plan. The plan covers you for 99 years and returns all the premiums if the policyholder outlives the policy term. The Block your Premium feature allows the policyholder to block the premium rate and increase the base sum assured up to 100% in the first five years of policy inception. 

Calculate Term Insurance Premium

A term insurance calculator is a useful online tool that helps you determine how much coverage you need based on your income, lifestyle, and family’s needs.

1
My Income
2
My current Cover
3
Additional Details
4
Our Recommendation
My Income
My current Cover
Additional Details
Our Recommendation
Total Life Cover Recommended
50 Lakh
12.5 Lakh
75 Lakh
Zero
1 Crore
Where do you stand
Additional Life Cover
Hi {name}
To secure your family’s financial future and protect their dreams,
you’ll need an additional cover of
rs 10,000
Note: This is a very brief calculation of HLV
Secure Now
Recalculate
Desclaimer-

The above calculation and illustration of figures are indicative only and not on actual basis.

Tax Benefits on Term Insurance Riders

Term insurance riders enhance your base policy by offering additional coverage for specific situations, such as accidental death, critical illness, or disability. Besides providing financial security, these riders also come with valuable term insurance tax benefit advantages.

1. Tax Benefit Under Section 80C

Premiums paid towards term insurance riders, such as an accidental death benefit rider, qualify for income tax benefit under Section 80C of the Income Tax Act, 1961. You can claim deductions up to ₹1.5 lakh per year, provided the policy meets the required conditions.

2. Tax Benefit on Health-Related Riders Under Section 80D

If you have opted for health-related riders like a critical illness rider or hospital care rider, the premium paid towards these riders qualifies for life insurance tax benefits under Section 80D. You can claim a deduction of:

  • Up to ₹25,000 for yourself and the family (below 60 years)

  • Up to ₹50,000 if you or your parents are senior citizens

3. Tax-Free Payouts Under Section 10(10D)

In case a term insurance rider provides a payout, such as in accidental death or critical illness cases, the amount received is fully tax-free under Section 10(10D), provided the policy follows tax exemption conditions.

4. Tax Benefit Investment for Future Security

Opting for term insurance riders is not just about enhanced coverage but also a smart tax benefit investment. These riders reduce your taxable income while ensuring your family’s financial protection in emergencies.

Glossary

  1. Term Insurance: A life insurance policy providing financial protection for a fixed term, offering tax benefits.
  2. Sum Assured: The guaranteed payout received by beneficiaries in case of the policyholder’s demise.
  3. Critical Illness Rider: An additional coverage option that provides financial support upon diagnosis of specified severe illnesses.
  4. Section 10(10D): Tax exemption clause ensuring that maturity or death benefits received from a life insurance policy remain tax-free.
  5. Tax Deduction: A reduction in taxable income, lowering overall tax liability, applicable to term insurance premiums.
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FAQs Related to Term Insurance Tax Benefits

Individuals and Hindu Undivided Family (HUFs) can claim tax benefits on a term insurance plan on the premiums paid.

If the policyholder chooses the benefit to be not paid immediately, the amount may attract tax. In this case, the amount is held by the insurance company until paid out, and it is paid out after a period of interest accumulation. This accumulated portion of interest is usually liable to taxes.

No. A term insurance plan is a pure protection plan that will take care of the financial future of your family once you pass away. The tax benefit of a term plan is an added benefit that you can enjoy.