The first term insurance policy in India was launched in 2009 by Aegon Religare. In less than 15 years, term insurance has emerged as one of the most popular types of life insurance in India. Apart from a higher life cover at affordable rates, tax benefits too make it an attractive option. Here is all you need to know about the tax benefits of term insurance.
What Is Term Insurance?
Term insurance is a type of insurance that provides life coverage for a specific period such as 10, 20, 30 years, or more, called as the “term”. In most cases, it provides just the death benefit, i.e., the payout of the sum insured in the case of the death of the insured. Unlike money-back or endowment life insurance, term insurance often doesn’t provide any maturity benefits after the end of the coverage period. However, do note that life insurance companies do have hybrid products that combine term insurance with maturity benefits. But in this article, we will talk only about pure-term insurance.
As a pure-term plan has only death benefits, its premium is also lower as compared to other types of life insurance. Because of the comparatively lower premium of term insurance, you can purchase a larger life cover to fully secure your family’s financial future.
The premium of a term plan depends on the age, health condition, and life expectancy of the insured.
Term Insurance Tax Benefits
A term policyholder is entitled to multiple tax benefits under various sections of the Income Tax Act. Let’s check them out in detail.
Term Insurance Tax Benefits u/s 80C
Like other life insurance policies, term insurance policyholders can avail of
Under this section, a term policyholder can claim a deduction of up to ₹1.5 lakh in premiums paid in a financial year. This section also includes tax deductions from investments like the Public Provident Fund, National Savings Certificates, ELSS, and tax-saving FDs.
Eligibility Criteria to Claim Term Insurance Tax Benefits Under Section 80C:
- The annual premium for your term plan should not exceed 10% of the sum assured.
- If the annual premium exceeds 10% of the sum assured, tax benefits will be applied proportionately. For example, if your annual premium on ₹1 crore term plan is ₹12 lakh, then you can claim a tax deduction of only ₹10 lakh amount under Section 80C.
- For term plans purchased before 31st March 2012, tax benefits will be applicable if the annual premium is less than 20% of the sum assured.
Term Life Insurance Tax Benefits Under Section 80D
Normally, tax benefits under Section 80D of the Income Tax Act are offered on health insurance plans. However, you can also claim tax deductions under this section on the term plan if you have opted for health-related riders like critical illness cover, surgical care cover, and other eligible health-related add-on covers.
Do note that you can claim a tax deduction under Section 80D only on the premium for the health-related add-on and not the premium for the term plan. The premium for the term plan is tax-deductible under Section 80C.
The maximum limits for the tax deduction on health-related add-ons are given in the table.
| Age of Policyholder | Premium Paid For | Upper Limit to Claim Tax Deduction under 80D | |
| Self, Spouse, Children | Parents | ||
| All the covered individuals are under the age of 60 | ₹25,000 | ₹25,000 | ₹50,000 |
| Parents are above 60 | ₹25,000 | ₹50,000 | ₹75,000 |
| Both you and your parents are above 60 | ₹50,000 | ₹50,000 | ₹100,000 |
How to Claim Tax Benefits for Term Insurance Under Section 80D?
You can claim tax benefits under Section 80D for term plans on eligible add-on health covers based on the information provided in the table above.
While claiming tax benefits under Section 80D for term plans, you need to ensure that there are eligible add-on health riders added to your policy. If you are not sure about the deduction, you can approach your insurance provider to give a break-up of the premium paid for the term plan and add-on health riders.
Eligibility Criteria to Claim Tax Benefit Under Section 80D:
Tax benefits under Section 80D are offered only to individuals and Hindu Undivided Families (HUFs). Only health insurance premiums paid for the following members are eligible for a deduction.
- Self
- Spouse
- Dependent kids
- Dependent parents
Payments Eligible for Deductions Under Section 80D:
A tax benefit under Section 80D cannot be claimed if:
- The policyholder doesn’t pay premiums regularly.
- The payment of premiums on add-on health covers is done by cash.
- The payment is made on behalf of working children, siblings, grandparents, or any other relative.
Tax Benefits on Term Insurance Riders
To increase the coverage scope of your term plan, you can avail of multiple add-on riders over and above what is offered on the term plan. Insurance providers have different add-on covers listed on their platforms, from which you can choose from.
Based on your selection of add-on cover, the new premium of your term plan is calculated and charged to you. Here, you should note that tax benefits on term insurance riders are applicable only on health-related add-on covers.
Tax Benefits Offered on Add-on Health Riders
- Upto ₹25,000 on the premium paid towards health insurance for self, spouse and dependent children
- Additionally, up to ₹25,000 for a premium paid for dependent parents below the age of 60
- In case the dependent parents are above 60 years of age, a ₹50,000 deduction can be claimed
- If both the policyholder and dependent parents are above 60 years of age, the maximum tax deduction that can be claimed is ₹1,00,000.
Term Life Plan Tax Benefits Under Section 10 (10D)
Under Section 10 (10D) of the Income Tax Act, the death benefits received under term insurance are exempt from income tax in the hands of a family member or beneficiary.
There is no upper limit to this tax exemption. The entire amount is exempt from tax, provided the premium paid for a single policy does not exceed 20% of the sum insured if bought before 31st March 2012 and 10% if bought after 1st April 2012.