Ch. 8: Life Insurance Tax Benefits Under Section 80C and 80D

There are several types of life insurance policies available in the market today and each type serves a different purpose.

A Term Insurance Plan, for example, helps in safeguarding your family’s financial future. Life insurance policies like Unit Linked Insurance Plans, Money Back Plans, Endowment Plans, etc. offer a combination of insurance and investment. Other life insurance policies assist you in meeting your specific requirements - for instance, a Whole Life Insurance Policy helps in leaving a financial legacy for your loved ones, a Child Plan helps you safeguard your child’s future financial needs and an Annuity Plan offers a regular income after you retire and helps you financially secure for your retirement life.

Did you know that the premiums you pay for all these life insurance policies are eligible for tax deduction under the Income Tax Act, 1961? Yes, that’s right!

In this article, let’s take a look at all the key details around tax benefits under life insurance policies. Let's start by determining which life insurance plans qualify for the tax benefits.

You can get a tax deduction for the premiums you pay under several types of life insurance policies, like -

• Term Insurance
• Whole Life Insurance
• Child Plan
• Money-Back Policy
• Endowment Plan
• Unit-Linked Insurance Plan
• Retirement Plan - Annuity Plan and Pension Accumulation Plan

If you buy a life insurance policy for yourself, your spouse, your parents, or your child, you can get tax benefits on the premium amount you pay every year under Section 80C of the Income Tax Act, 1961.

Tax Deduction Limit Under Section 80C
The maximum tax deduction you can claim under Section 80C is Rs. 1.5 Lakhs.

You will be eligible to get a tax deduction under Section 80C only if the following conditions are met.

• If the life insurance policy is issued to you before 1st April 2012, the premium amount you are paying should not exceed 20% of the sum assured.
• If the life insurance policy is issued to you after 1st April 2012, the premium amount you are paying should not exceed 10% of the sum assured.

Along with a life insurance policy, insurance companies allow you to opt for riders, i.e., add-ons that provide additional benefits under special circumstances. You can get tax benefits on the premiums you pay for these riders too.

➔ Section 80D
Typically, you get a tax deduction on the health insurance premiums you pay under Section 80D. However, if you buy a health-related rider (a critical illness rider, hospital care rider, surgical care rider, etc.) along with your life insurance policy, you can get a deduction for the rider premiums you pay under this section. We discuss the deduction limits under 80D in the next section of this article.

➔ Section 80C
Under Section 80C, you can get a tax deduction on premiums you pay for all other riders except the three health-related riders we have mentioned above. You can claim a deduction of up to Rs. 1.5 Lakhs for the rider premiums you pay annually.

The maximum tax deduction you can avail under Section 80D for the premiums paid towards health-related riders will differ based on your and your family members’ age. Basically -

If you and your parents are below 60 years, you can claim a tax deduction of up to -

• Rs. 25,000 for yourself, your spouse, and your children.
• Rs. 25,000 for your parents.

If you are below 60 years and your parents are above 60 years, you can get a deduction of up to -

• Rs. 25,000 for yourself, your spouse, and your children.
• Rs. 50,000 for your parents.

If you and your parents are above 60 years, you can get a tax deduction of up to -

• Rs. 50,000 for yourself, your spouse, and your children.
• Rs. 50,000 for your parents.

If you are a Non-Resident Indian, you can get a deduction of up to Rs. 25,000.
If you are a member of HUF*,, you can apply for a tax deduction up to -

• Rs. 25,000 for the rider premiums paid for members of the HUF who are below the age of 60.
• Rs. 50,000 for the rider premiums paid for members of the HUV who are over the age of 60.

*HUF or the Hindu Undivided Family is a family that consists of a common ancestor and all his lineal male descendants, their wives, and unmarried daughters.

Please note: The limits up to which you can claim deduction under Sections 80C and 80D may be subject to change based on the Income Tax Act, 1961.

• Tax deduction under Sections 80C and 80D can be availed on the premiums paid in full, including taxes.
• You cannot apply for a tax deduction if you are making the premium payment in cash.
• You can claim tax deduction only if you are making the premium payments to an insurance company that is authorised by the IRDAI (Insurance Regulatory and Development Authority of India).
• If you are covered under a group life insurance plan, you can claim tax deduction only if you are paying either a partial or full premium under the plan.

You can get tax benefits on the life insurance policy premiums you pay every year under Section 80C of the Income Tax Act, 1961. And, if you have opted for riders with your life insurance, you can get tax benefits on the rider premiums as well.

Under section 80D, you can get a tax deduction on the rider premium payment made towards a critical illness rider, hospital care rider, surgical care rider, etc. You can claim a tax deduction on the premium paid for other riders under Section 80C.

There are certain limits and conditions you will need to meet before claiming deduction under both Sections 80C and 80D. Ensure you are well aware of them - to avoid any hassles later.