The fundamental goal of buying a term life insurance plan is to ensure your loved ones will not experience financial stress in your absence. For those wondering what term life insurance is, it is a policy that provides life cover for a specific tenure, in return for a premium.
Paying your term insurance premiums can earn you some benefits that you may not have expected.
If you have opted for the old tax regime and are paying term life insurance premiums, you may be able to claim exemptions under Section 80C of the Income Tax Act, 1961. Depending on the policy chosen, you may also be able to claim similar term insurance premium tax benefits under Section 80D of the Income Tax Act, 1961, which covers premiums paid towards health coverage.**
How can that be done? How can you cover and claim exemptions for health coverage with term life insurance premiums? Let’s find out.
Term Insurance Tax Benefits**
Term insurance provides tax benefits under three primary sections of the Income Tax Act: Section 80C, Section 80D, and Section 10(10D). Each section offers unique advantages, contributing to overall tax savings.
Section 80C: Term Insurance Premium Tax Benefit
Under Section 80C of the Income Tax Act, premiums paid towards term insurance policies are eligible for tax deductions. It is applicable to premiums paid for self, spouse, and children.
- Conditions: The premium paid should not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured, so that the validity of the term plan tax benefit can be used.
- To make your tax planning easier from the start, consider using a term life insurance premium calculator. It gives you an estimate of the premium, so you can choose the right term plan and enjoy tax benefits as planned.
Section 80D: Term Insurance Tax Exemption for Health Riders
Section 80D provides tax benefits for premiums paid towards health-related riders attached to term insurance plans. It includes health insurance premiums for self, spouse, children, and parents. For example, if you have attached a rider to your term life policy that brings you health insurance benefits, such as a critical illness rider add-on, you may want to consider making a term insurance tax exemption claim under this section.
Section 10(10D): Tax Exemption on Death Benefit
Section 10(10D) of the Income Tax Act provides tax exemptions on the death benefit received from term insurance plans. It is applicable for all term insurance plans meeting the specified conditions. So, if your nominee makes a claim on your primary term insurance benefit, they do not have to pay taxes on the received amount, if they claim an exemption under this section.
Eligibility: The death benefit received by the nominee is fully exempt from tax.
Conditions: The premium paid should not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured.
Understanding Term Insurance Tax Benefits
Beyond the core life cover, you can enhance your term life policy with riders, which also offer attractive tax benefits of term insurance.
A critical illness rider provides a lump sum payout in case the insured person is diagnosed with a life-threatening disease. The payout can be used in any way the beneficiaries wish. Similarly, other health-related riders also provide a payout in case a specific situation occurs.
The premium for these riders is calculated separately from the base cover cost of the life insurance policy. This separate premium you pay can be used to claim tax deductions under Section 80D of the Income Tax Act. The deduction limit for individuals under 60 years of age is up to ₹25,000 per year. It is extended to ₹50,000 for senior citizens.
If you have a health insurance policy, the deduction against its premium will be subject to the same cap.
Importance of Term Life Insurance**
Earning tax exemptions for the premiums paid and benefits received from your term life insurance policy is a worthwhile proposition for getting a new policy. However, the fundamental purpose of buying a term life insurance policy should ideally be to get some form of financial protection for your loved ones. The term insurance deduction in income tax for premiums and benefits received could be viewed as an additional advantage of buying term insurance.
To better understand the benefits you may expect, you may consult a financial advisor. You may also use a term insurance calculator, which is a valuable tool that helps you determine the appropriate coverage amount and premium based on your financial needs and liabilities. This may help you understand how much tax exemption you may be able to claim.
Term insurance is not only a crucial tool for financial protection but also offers significant tax benefits under Sections 80C, 80D, and 10(10D). By understanding these term life insurance tax benefits and claiming them appropriately, you can make informed decisions to maximise your tax savings while ensuring comprehensive coverage for your loved ones. Putting your hard-earned money in the right term insurance plans at the right time can help secure your family's financial future and provide peace of mind,- (knowing that they are protected even in your absence).**
FAQs**
1. What is the maximum tax deduction I can claim for my term insurance premium?
You can claim a deduction of up to ₹1.5 lakh per financial year for your term life insurance premium under Section 80C. This limit includes other investments like ELSS and PPF. If you have health riders, you can increase your term insurance tax benefit by claiming an additional deduction under Section 80D.
2. Under which section is the death benefit from a term plan tax-free?
The death benefit received by your nominees is completely tax-exempt under Section 10(10D) of the Income Tax Act, 1961. This is one of the most significant benefits of term insurance, as it ensures your family receives the full sum assured without any tax deductions.
3. Can I claim tax benefits for a term insurance policy bought for my spouse?
Yes, you can claim term plan tax benefits for your spouse, as long as the policy is in your name. You can buy the policy in your name but still have your spouse as the insured person. In this case, the premiums paid for such a plan are eligible for a tax deduction under Section 80C, subject to the overall limit of ₹1.5 lakh. This helps families secure their coverage while also maximising their term life insurance tax benefits.
4. Is there a condition linking the premium to the sum assured for tax benefits?
Yes, for policies issued after April 1, 2012, the premium should not exceed 10% of the sum assured to avail of the term insurance tax benefits under the section which you plan to use. Using a term life insurance premium calculator can help you find a plan that meets this criterion.
** Tax exemptions are as per applicable tax laws from time to time.
Disclaimers:
Disclaimers: IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North Tower, Building 4, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 18002098700. Email id: customer.first@indiafirstlife.com, Website: www.indiafirstlife.com. Fax No.: +912268570600. IndiaFirst Life Insurance Company Limited is only the name of the Life Insurance Company and ________________ UIN ____________ is only the name of the Life Insurance Product and does not in any way indicate the quality of the contract, its future prospects, or returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd under License. Advt.
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