Term Insurance Tax Benefit | Tax Benefits of Term Plan
Updated On Jul 08, 2021
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The main motive behind purchasing a life insurance policy is to build a financially secure future for your loved ones after your demise. However, its benefits are not limited to financial security only. The proper term insurance plan will offer loan/debt repayment provisions, tax benefits, planning for your children/dependent’s future, retirement planning, etc.
What is a Term Insurance Policy?
It is regarded as the most affordable and popular policy plan that provides death benefits to the nominee if the life assured passes away before policy completion. According to the life assured current needs and future goals, the contract tenure can lie between 5 years to 65 years. Furthermore, regular premium payments are made by the policyholder to ensure policy validity till the fixed duration. However, there are no maturity benefits that can be offered to the life assured.
Tax Benefits of Term Plan
The tax benefits that can be offered on a term insurance policy are as follows.
1. Tax Benefits Under Section 80C
Tax benefits on the payable premium amount of a term insurance policy availed by the life assured or a policy purchased on behalf of his/her spouse or children is offered under the Section 80C of Income Tax Act. Even a huge amount of Rs. 1.5 Lakhs can be saved in a year through the provision. It must be noted that policies bought before 31st March 2012 can enjoy tax benefits if the payable premium rate is less than 20% of the sum assured of the term insurance policy. However, policies bought after 1st April 2012 can have tax benefits if the percentage of premium rate was less than 10% of the policy sum assured. According to Section 80(U), i.e., a term insurance policy of a disabled person, and Section 80DDB, i.e., a term insurance policy of an ill person, the percentage of premium amount must be less than 15% of the sum assured to get tax benefits.
2. Tax Benefits Under Section 10(10D)
Tax exemptions are made on the maturity benefits, or death benefits given to the life assured or the beneficiary, respectively, under Section 10(10D) of the Income Tax Act. Although these benefits are provided with no upper limit, they can only be available under some special conditions. For instance, the percentage of the premium must not exceed 20% of the sum assured; only then tax exemptions are offered. However, this is unlikely to happen since the annual premium is hardly higher than the term insurance policy’s sum assured.
It is advisable to purchase a term life insurance policy for its life coverage benefits and tax benefits should be prioritized under it. This will help you choose the best plan which will resonate with your family needs, goals and aspirations. Additionally, a financial advisor or an insurance agent can be consulted as well to help understand all the benefits that can be availed according to your tax bracket.
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- 4 Things to Consider While Buying Term Insurance Plan
- Online Term Insurance vs Offline Term Insurance Plans
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.