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Kotak e-Term Plan provides a high level of protection to your loved ones in your absence. Know more

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Kotak Guaranteed Savings Plan is a savings and protection plan that helps you achieve long-term financial goals and provides an insurance cover against any eventuality. Know more

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Kotak Health Shield Plan helps secure your finances in sudden medical expenses such as Cardiac, Liver, Neuro, and Cancer (all early and significant illness stages/conditions of cancer), along with offering protection for personal accidents - in case of accidental death or disability. Know more

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Tax Benefit of Investing in Term Plan

Tax Benefit of Investing in Term Plan
  • 16th Feb 2018 |
  • 16,435

The market is flooded with a plethora of life insurance products. There are numerous insurance plans available namely endowment plans, whole life insurance plans, annuity plans, and money plans, among others. Each of these insurance plans has a different financial goal, which may vary from individual to individual.

What is Term Insurance?

Term insurance is an insurance policy which offers life cover for a certain period of time and does not have a maturity benefit. In case of an unfortunate event of death during the term of the policy, the insured’s loved ones will be paid the death benefit.

The death benefit amount may be used to cover income loss, in case the policyholder was the breadwinner of the family. Besides, it may be used to cover unpaid debt as well as meet other financial obligations.

It is important to note that there is no maturity benefit in a term life insurance plan. This means that in case you the term of the policy, no benefits are paid. Such a plan offers only coverage against an unfortunate event of death, and hence such a plan is known as a pure life cover.

The good news is that insurance providers charge a low premium amount for term plans. In fact, premiums charged for this type of insurance is the lowest among all other types of life insurance plans. This is because the entire amount is used to cover risk and is not used for further investment.

Term Plan Benefits

There are numerous advantages associated with the purchase of a term life insurance scheme. Most importantly, you may avail of a higher life cover due to affordable premiums. It is important to choose the sum assured amount based on your family’s lifestyle needs. You may go ahead and opt for a higher coverage amount at an affordable rate.

Term plans offer additional coverage through numerous add-ons, known as riders. Some of the most common riders that are offered with term plans include partial or permanent disability rider, waiver of premium rider, critical illness rider, and accidental death rider, among many others. You may analyze the features and benefits of such riders and opt for the ones that are suitable to your needs. By doing so, you may enjoy additional coverage at a nominal cost.

Insurance providers also provide innovative benefits when it comes to term plans. Some insurers offer discounts to non-smokers, while some provide lower premiums to those who purchase term plans through the Internet. Since the cost of paperwork is reduced while purchasing an online term plan, insurers pass on the benefit of low cost to their customers. You may therefore opt for an online plan, and save a significant amount of money.

Term Insurance Tax Benefits

A major advantage of investing in a term insurance policy is the tax benefit offered by the Income Tax Act, 1961. This act offers numerous exemptions and deductions so as to reduce tax liability for tax payers. You may therefore avail of such deductions and lower your taxable income to a great extent.

The term plan tax benefits are offered under Sections 80C and Section 10(10D) of the Income Tax Act. Some of the benefits are:

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Term Insurance under Section 80C

You may avail of tax deduction on the premium paid towards your term plan under Section 80C of the Income Tax Act. This includes premiums paid for yourself, your spouse, and your dependent children. The maximum amount that you may enjoy tax benefit under Section 80C is INR 1.5 lakh.

There are certain clauses for deduction under this section. These include:

  • In case the premium amount exceeds 10% of the ‘sum assured amount’, you may claim a maximum limit of up to 10% of the sum assured. This is applicable on term plans that are issued on or after 1stApril 2012.
  • If your term plan was purchased on or before 31st March 2012, the tax deduction is applicable on the total premium subjected to a maximum limit of 20% of the sum assured amount.
  • In an event that you are suffering from an ailment listed under Section 80DDB or a disability listed under Section 80U, you may avail of an extension of the limit from 10% to 15%. This clause is applicable for term plans that have been issued on or after 1st April 2012

Members of Hindu Undivided Family (HUD), along with individuals, may avail of the tax benefits under this section.

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Term Insurance under Section 10(10D)

Besides saving tax through premiums, the insured may avail of tax exemption on the death benefit amount. In case of an unfortunate event of death, the policyholder’s family / nominee will be entitled to receive the death benefit. Section 10(10D) states that this death benefit amount is totally exempt from tax. This benefit may therefore be availed of by the beneficiaries to reduce tax liability. The good news is that there is no upper limit on the tax benefit.

This clause, however, is not applicable under the following circumstances.

  • If the amount is received under Section 80DD (3). This includes deposits made towards maintenance, which includes medical treatment of handicapped dependent.
  • If the amount is received under the Keyman Insurance Policy
  • If the amount is not a part of the death benefit for the policy issued on or after before1st April 2003, but on or after 31st March 2012. Besides, such a benefit is not applicable if the total premiums paid during the policy term are more than 20% of the sum assured amount received.
  • In an event that the term plan is issued on or after 1st April 2012, you may avail of exemption benefit only if the total premium paid does not exceed 10% of the sum assured amount.

Read Here for More Related Articles:

Invest in Term Insurance and Save Tax

Kotak e-Term Plan


  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492


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