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Term Insurance Tax Benefits

Term Insurance Tax Benefits

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.

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:

  1. 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 2012, 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.
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  2. 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.

    Traditionally, the Section is reserved only for health insurance policies. It offers a deduction on health insurance policies taken for self, spouse, children, or parents with different deduction limits under various conditions.

    iSelect Smart360

    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.
  3. 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 exempt under Section 10(10D).

    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. Further, the term plan covers 40 listed critical illnesses with other benefits.

    Know more about - iSelect Smart360 Term Plan.

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.

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