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Have You Considered Term Insurance a Part of Your Tax Planning

  1/18/23 9:46 AM

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  1/18/23 9:46 AM   |

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Term insurance is a type of life insurance that provides coverage for a specific period of time, known as the term of the policy. The affordable premiums, extensive coverage, choice of riders, and uncomplicated coverage are some of the most attractive features of a term policy. Additionally, you may be able to benefit from tax savings when you purchase this insurance plan.

Importance Of Term Insurance Plans

Term insurance is a widely used financial tool in India. A term plan can provide financial protection for your family in your absence and help cover medical expenses with an added rider. Additionally, term insurance may offer riders that waive the premium in the case of a permanent disability resulting from an accident and provide your family with an additional sum assured in the case of accidental death. All of these options can be added to a term plan from the comfort of your home. One of the additional benefits of term insurance is the attractive tax benefits on the premium paid and the life cover payout. If you have not yet considered term insurance as part of your tax planning, this article may change your mind.

What Should You Know About Term Insurance Tax Benefit?

Term insurance and tax benefits go hand-in-hand. A term plan can offer many tax benefits under different sections of the Income Tax Act, 1961, such as Section 80C, Section 80D, and Section 10(10D). These tax benefits can be availed on the following:

  • The premiums paid towards the term insurance plan
  • The life cover payout received by the nominee from a term insurance plan

In addition to this, you must also know that tax benefits can be availed by the following people:

  • Individual taxpayers
  • Hindu Undivided Family (HUF)

What are the Term Insurance Tax Exemption Benefits Under Section 80C?

As per the provisions of Section 80C under the Income Tax Act, 1961, you can claim the following tax benefits from a term plan:

  • The premium paid towards a term insurance plan can be used for exemption up to a limit of ₹1.5 lakhs per annum.

However, in order to qualify for this tax exemption, individual taxpayers and HUFs should know the following:

  • For a term insurance plan issued after April 1, 2012, if the premium amount exceeds 10% of the total sum assured, then you will not be able to claim any income tax exemption.
  • In case of the term insurance plan issued before March 31, 2012, if the premium amount exceeds 20% of the total sum assured, then you will not be able to claim any income tax exemption.
  • As per Section 80C(5), if you surrender or cancel the plan voluntarily within two years from the policy purchase date, then you will not be eligible to enjoy any tax benefits on the premiums paid under Section 80C.

What Are the Tax Benefits of Term Insurance Under Section 80D?

A lot of people get confused here. Ideally, Section 80 D only includes tax benefits for health insurance plans and not life insurance policies. Since term plans are life insurance products, they are typically not included under Section 80D.

However, in some cases, your term insurance can qualify for a deduction under this Section if you purchase a health-related rider, such as the critical illness rider.

Here are the rules for the same:


Self, spouse and dependent children are NSC* & Parents are NSC Self, spouse and dependent children are NSC & Parents are SC Self, spouse and dependent children are SC & Parents are SC

(A) Medical insurance premium of self, spouse and dependent children

₹. 25,000

₹. 25,000

₹. 50,000

(B) Medical insurance premium and preventive health check-up taken for Parents

₹. 25000

₹. 50,000

₹. 50,000


What Is the Term Insurance Tax Benefit Under Section 10(10D)?

Term insurance also offers tax benefits for your nominee. An online term plan is meant to secure your loved ones in your absence, and tax benefits further enhance this security by ensuring that your loved ones get the entire sum due to them without any tax deductions.

As per Section 10(10D), the nominee of a term insurance plan can enjoy a tax-free payout as per the following:

  • The nominee can claim tax exemption on the entire sum assured amount if the premium of the term plan is less than 10% of the total sum assured.
  • In case the term policy is not covered under the tax exemption and the amount received is higher than ₹1,00,000, and the insurance provider has the policyholder’s PAN, the insurer can levy a 5% Tax Deducted at Source (TDS) to the insurance payout.

Should You Buy an Online Term Insurance Plan to Save Tax?

While a term insurance policy does offer many tax benefits, you should keep in mind that this should not be the sole reason to invest in this life insurance product. Remember that tax exemption is only an added advantage of a term plan. However, the plan offers far more than just this. It offers financial security to your loved ones, it provides you with peace of mind, and it ensures that your family members fulfil their goals even in your absence. This financial tool is ideal for all Indian families.

A Term Insurance plan can be the perfect addition to your insurance portfolio and guarantee financial protection for your family. The term insurance plans can offer affordable premiums and riders to enhance the cover. Moreover, you can also maximize the benefits of term insurance under tax exemption.

So, go ahead and buy a term insurance plan as soon as you can. But make sure to pick a plan that offers cost-effective premiums, a high sum assured, and the option to add riders for overall protection.


Neha Panchal - Financial Content Writer

Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.

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