Term Insurance - Tax Benefits
Updated On Sep 05, 2021
Table of Contents
Saving money is an important part of every individual’s life, especially when it comes to paying taxes, each person tries to find different ways to lessen their tax liability. One can purchase a term insurance plan in order to avail tax benefits. Alongside receiving a life coverage, one can also get tax benefits under a term insurance plan.
Tax Benefits Offered Under a Term Insurance Plan
When you decide to purchase a term insurance plan, you are allowed to avail various tax insurance benefits under it. It helps you in saving money on the payable tax while at the same time protecting your family members against financial hardships in life in your absence.
Let us understand various tax benefits offered under a term insurance plan:
Section 80C of the Income Tax Act
According to section 80C of the Income Tax Act, a policyholder can avail tax deduction of up to Rs 1,50,000 for the payable premium towards a term insurance plan. An important aspect that you must be aware of is that the upper limit of tax rebate available also includes tax benefits received on investment in tax saving fixed deposits, Public Provident Fund(PPF), and other tax saving tools.
Some of the important facts about term insurance tax benefit under section 80C of the Income Tax Act are as follows:
- For all the term insurance policies issued before 31st March 2012, the tax deduction is applicable in case the yearly premium payable is under 20% of the sum assured.
- The premiums paid annually by you towards a term insurance policy should not go beyond 10% of the opted sum assured. In case it exceeds, then tax benefits on term insurance under sec 80C would be applied proportionately.
Section 80D of the Income Tax Act
Tax benefits under section 80D are mainly allowed towards the premium payable for health insurance. However, for term insurance plans, one can avail tax benefits under this section if they have bought health-related riders such as surgical care cover, critical illness rider and similar riders. To state simply, one can maximize their tax savings with the premiums paid towards term insurance by choosing the afore-mentioned riders while at the same time receiving a health cover.
Section 10(10D) of the Income Tax Act
The maturity benefit or death benefit received by the nominee appointed by the policyholder under a term insurance plan is exempted from tax under the section 10(10D) of the Income Tax Act. Generally, these tax benefits received on term insurance do not have any upper limit, which means that the whole sum that is to be received by you and your family members under a term plan is exempted from tax. The tax benefits received under section 10(10D) towards term insurance plan are subject to some conditions. The condition states that the death or maturity benefit under a term insurance cover is non-taxable in case the premium paid during the plan period does not exceed 20% of the pre-specified sum assured.
You may also like to read - Key Factors to Consider Before Buying a Term Insurance Plan
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.