Ch. 25: Term Insurance Tax Benefits¹

In life's unpredictable journey, securing your family's future is crucial. Term insurance stands as a pillar of protection and ensures that your loved ones are shielded from financial uncertainties in your absence. In addition to the financial security offered, term insurance brings an additional layer of relief through tax benefits¹. Understanding these advantages not only empowers you to make informed decisions but also boosts the overall value of your policy. In the article, we discuss the tax benefits associated with term insurance and how it goes beyond just providing financial security for your family.

Term Insurance Tax Benefits¹ Under Sections 80C and 10(10D)

Term insurance in India comes with tax benefits¹, under Sections 80C and 10(10D) of the Income Tax Act of 1961. When you pay premiums for term insurance, you can claim tax deductions under Section 80C, subject to a maximum limit of Rs. 1.5 lakh.

Adding to this, the payout your nominee receives in case of your demise, i.e., the death benefit, is also exempt from tax under Section 10(10D)^. This makes term insurance a smart financial choice for safeguarding your family's financial future while also managing your tax responsibilities efficiently. Basically, it offers a double advantage – providing financial security for your loved ones and helping you optimise your tax liabilities.

Tax Benefits¹ On Term Insurance Riders Under Section 80D

When you choose a term insurance plan, insurance companies often offer you the flexibility to tailor it with additional features called riders. These are extra layers of protection you can add to enhance your coverage in specific situations, available at additional premiums.

The good news is that you can also enjoy tax benefits¹ on these rider premiums. Section 80D not only provides tax advantages for your health insurance premiums but also extends these benefits to the premiums you pay for health-related riders. So, whether it is a critical illness rider, surgical care rider, hospital care rider, etc., you can get tax benefits¹ for these premiums, too.

Let’s look at the different sections that provide tax deductions under the Income Tax Act of 1961

Understanding Different Facts Related To Section 80D Of The Income Tax Act

Section 80D of the Income Tax Act in India provides tax deductions for health insurance premiums. Individuals and HUFs can claim up to ₹25,000 (or ₹50,000 for senior citizens) for premiums on policies covering themselves, their spouses, and children. An additional deduction of up to ₹25,000 (or ₹50,000 for senior citizens) is available for premiums paid for parents. And, there's an added benefit of up to ₹5,000 for preventive health check-ups - which is within the overall limit of 80D.

Eligibility Criteria To Claim Tax Benefits Under Section 80D

To qualify for tax benefits* under Section 80D, it is important to pay your premiums through your bank, credit/debit cards, cheque, demand draft, or other similar methods. This is because you should keep in mind that cash payments will not be eligible for tax exemptions under Section 80D, except for preventive health check-ups.

Exclusions Under Section 80D Of The Income Tax Act

Listed below are some of the exclusions specified under Section 80D of The Income Tax Act of 1961

• Employer-Paid PremiumsIf your employer covers the premium for a group health insurance plan, the benefits of Section 80D will not be applicable for you.
• Coverage For Working Children Or RelativesThe section does not cover premiums paid on behalf of working or employed children or other relatives.
• Cash PaymentsTax benefits* are not applicable if you pay the health insurance premium in cash. As mentioned earlier, cash payments will not qualify for tax exemptions under Section 80D, except for preventive health check-ups.

Payments Eligible For Deductions Under Section 80D

When you pay for health insurance, you can get tax benefits* under Section 80D of the Income Tax Act. This helps you save money and ensures you are financially protected against medical costs. The eligible payments include premiums for policies that cover you, your spouse, children, and parents. The deduction limits depend on the age of the insured individuals, and generally, they come with extra benefits for senior citizens.

If you are covering yourself, your family, and dependent children, the maximum deduction is Rs. 25,000. This amount increases to Rs. 50,000 if you and your spouse are senior citizens. You can also get an extra deduction of Rs. 25,000 for premiums paid for dependent parents, and this increases to Rs. 50,000 if your parents are senior citizens. You should note that Section 80D is not just about health insurance premiums – it also provides tax deductions for preventive health check-ups. This means that you can claim an additional deduction of up to Rs. 5,000 for expenses on preventive health check-ups for yourself, your family, or dependent parents.

As discussed above, it is important to note that these deductions are linked to non-cash payment methods like cheques, bank transfers, or online transactions, except for preventive health check-ups. Understanding the scope of eligible payments under Section 80D empowers individuals to strategically plan their health insurance coverage. This way, they can not only maximise tax benefits* but also ensure comprehensive protection for themselves and their families.

How Do I Claim Tax Benefits* For Term Insurance Under Section 80D?

Section 80D focuses on health insurance, so claiming tax deductions for term insurance requires some special attention. You can start by reviewing your term plan details. Check if there are health riders you want to add, like a critical illness rider, which qualifies for tax benefits* under Section 80D. And, if you are not sure about the deduction details, you can ask your insurance provider or a financial consultant for clarification.

When filing your taxes, you should input all details accurately to avoid losing term insurance tax benefits*. You should remember that a term insurance policy offers more than just life cover. It comes with additional health riders and the chance to create a robust tax plan. By making wise investment choices, you not only secure your family's financial future but also save money.

Some Frequently Asked Questions About Term Insurance Tax Benefits

• What Are Term Insurance Tax Benefits¹? Term insurance comes with tax advantages. You can claim tax deductions for the premiums you pay for it, thanks to Section 80C of the Income Tax Act. Adding to this, the death benefit your beneficiary receives in case of your demise is also exempt from tax under Section 10(10D)^.

• How Can I Maximise Term Insurance Tax Benefits¹?To make the most of term insurance tax benefits¹, follow these simple steps

• Pick a cover amount that suits your needs.

• Ensure you pay your premiums on time.

• Consider adding extra protection with riders that boost your coverage.

• Stay on the right side of tax rules to make the most of available deductions.

• Should I Buy A Term Plan Based On The Term Insurance Tax Benefits¹Only?When deciding on a term insurance plan, you should make it a point to not just focus on tax benefits*. While they are essential, you should also consider other factors like the cover amount, any additional riders, and your overall financial requirements. Hence, you should make a balanced decision by considering all aspects of your financial plan.

• Can I Get Term Insurance Tax Benefits¹ If I Stop Paying The Premiums?If you stop paying premiums for term insurance, your term insurance policy may lapse, and you may lose the tax benefits¹. This is why it is crucial to pay premiums regularly and keep the policy valid to enjoy those tax advantages.

• Who Is Eligible To Claim Term Insurance Premium Tax Benefit¹?If you are paying premiums for term insurance, you will be eligible for tax benefits¹ under Section 80C of the Income Tax Act of 1961.

• Do I Need To Pay GST On Term Insurance Under Section 80C?Yes, GST (Goods and Services Tax), along with applicable cesses are charged based on the rates applicable to the premium amount.

• Are There Any Situations When The Beneficiary Might Still Have To Pay Tax?The death benefit received by the beneficiary from the policy is exempt from tax as long as it meets the conditions outlined in Section 10(10D)^ of The Income Tax Act, 1961.

• Will I Continue To Receive Tax Benefits^ If I Discontinue The Term Insurance Policy?If you decide to stop your term insurance policy, you might lose the tax benefits¹ associated with it. This is why you should assess how discontinuing the policy could affect your tax responsibilities before making a decision.

• What Is The Limit Of The Tax Deduction For Senior Citizens Under 80D?Section 80D is exclusively for health insurance and not term insurance. However, senior citizens can enjoy higher deductions for health insurance premiums under Section 80D.

• What Is The Tax Deduction Limit For Ordinary Citizens Under 80D?For individuals, their spouses, and dependent children, the highest deduction allowed is Rs. 25,000. This limit increases to Rs. 50,000 if you and your spouse are senior citizens.

• What Are The Rider Covers That Qualify For Tax Benefits¹?Certain riders, like the critical illness rider and hospital cash rider, come with tax benefits¹ under Section 80D. This adds an extra layer of financial protection to your term insurance.

• Do I Have To Pay Taxes On The Term Insurance Claim Amount?No, the death benefit your nominee gets from a term insurance policy is exempt from tax. Section 10(10D)^ of the Income Tax Act of 1961 ensures that the entire claim amount is disbursed to your beneficiary.

• Can I Claim Both 80D And 80C?Yes, you can claim deductions under both Section 80C for term insurance premiums and Section 80D for health insurance premiums. This way, you maximise your overall tax benefits¹ and get the most out of both.

To Conclude

Term insurance in India offers valuable tax benefits under Sections 80C and 10(10D) of the Income Tax Act. By claiming deductions on premiums under Section 80C and enjoying tax exemptions on the death benefit under Section 10(10D), term insurance becomes a dual-purpose financial tool. It also comes with additional riders that can also contribute to tax savings under Section 80D, making term insurance a versatile and tax-efficient choice.