Tax Benefit of Investing in Term Plan

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term Plan

Protect Your family’s financial future with Kotak e-Term Plan. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Kotak Health Shield

Insurance against medical expenses related to heart, brain, liver and Cancer. Know more

Tax Benefit of Investing in Term Plan
  • 16th Feb 2018 |
  • 17,013

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 that offers life cover for a certain period of time and does not have a maturity benefit. In case of the policyholder’s death during the term, the insured’s loved ones will be paid the death benefit. This 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 outlive the policy tenure, no benefits are paid. Such a plan offers only coverage against 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 are 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 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 taxpayers. You may therefore avail yourself of such deductions and lower your taxable income to a great extent.

Term Insurance under Section 80C

You may avail yourself of the 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 ₹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 1st April 2012.
  • If your term plan was purchased on or before 31st March 2012, the tax deduction is applicable on the total premium subject to a maximum limit of 20% of the sum assured amount.
  • In the 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.

Who can claim term insurance tax benefits under Section 80C ?

The most widely used method for individuals to reduce their tax burden is Section 80C of the Income Tax Act. A maximum deduction of ₹1.5 lakh is available under this Section for all of the specified investments and instruments taken together. It consists of various investment alternatives like PPF, EPF, ULIP, and ELSS, as well as payments for things like home loan repayment, child’s tuition, life insurance premiums, etc.

The premium paid towards term life insurance is exempt from taxes under this Section, allowing the policyholder to avail themselves of deductions up to ₹1.5 lakhs (total of all investments and payments under this Section). Section 80C’s eligibility requirements for the tax advantage for term insurance include:

  • The annual premium should be less than 10% of the assured amount. If the premiums do go beyond 10%, deductions will be made in a commensurate manner.
  • For insurance issued before March 31, 2012, the discount is applicable only when the annual premium does not exceed 20% of the sum guaranteed.
  • The policyholder won’t be eligible for Section 80C tax benefits on premium payments if the policy is voluntarily relinquished or cancelled before the two-year mark, according to Section 80C (5).

Term Insurance under Section 10(10D)

Besides saving tax through premiums, the insured may avail themselves of tax exemption on the death benefit amount. In case of the policyholder’s death, their family/nominee is 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 1st 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 the 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.

Who can claim term insurance tax benefits under Section 10(10D)

Section 10 (10D) (Income Tax Act, 1961) allows individuals to benefit from tax exemption on the sum assured and bonus (if any) received through their policy claim. This exemption likewise covers the returns from a ULIP. Both salaried and non-salaried individuals, Hindu Undivided Families (HUFs), associations, trusts, businesses, groups of persons, foreign corporations, and others can request these exemptions.

Term Insurance Tax Benefits under Section 80D

Term insurance is one of the most beneficial products from all perspectives. Not only does it help you protect your family’s financial security, but also give you tax benefits. You have already seen how it benefits under Section 10 (10D).

Under Section 80D, a term insurance with critical illness cover can help you save taxes too. So, Section 80D offers a deduction of ₹25,000 on premiums that go towards term plan with critical illness cover.

Limitations on Term Insurance Tax Benefits

  • If the amount of premium paid during a financial year is greater than 20% of the sum promised, the tax benefit is available for an amount up to 20% of the total assured.
  • If the premium amount for a policy issued after April 1, 2012, does not exceed 10% of the actual sum guaranteed, you may be eligible for an income tax credit under the IT Act.
  • If the policy is issued after April 1, 2012, and your premium amount is less than 10% of the actual sum assured, you may be eligible for benefits if you have a specific illness or severe disability.

Exceptions on Tax Exemption Rule

The beneficiary may be required to pay taxes on the term insurance payout in one of two situations.

One instance is when the policyholder specifies in their application that the death benefit cannot be paid immediately after the decedent passes away. In these situations, the insurance provider retains the money and pays it once the interest-bearing term has passed. The beneficiary’s interest payment is considered taxable. Instead of the promised amount, the beneficiary must pay tax on the interest generated since the policyholder’s passing.

In another scenario, when the proceeds from the policy come in the form of an inheritance, the beneficiary is responsible for paying tax on the term insurance. When the policyholder omits the nominee information, the policy benefits occasionally go to the deceased’s estate.

Even though these situations are uncommon, when they do occur, the insurance proceeds become a component of the decedent’s estate and are therefore subject to inheritance tax. As the insurance firms require the policy buyers to include information regarding the primary and secondary beneficiaries, this rarely occurs. The secondary beneficiary is entitled to the payout if the primary beneficiary dies before the policyholder.

Invest in Term Insurance and Save Tax

Download Brochure


  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999


Browse our library of resources

Download Brochure


  • Enhanced Protection Through Riders
  • Life Cover
  • Tax Savings
  • Multiple Premium Payment Terms
  • Guaranteed @ Loyalty Addion
  • Accrued Guaranteed @ Additions

Ref. No. KLI/22-23/E-BB/490


- A Consumer Education Initiative series by Kotak Life

Similar Articles

LTC Cash Voucher Scheme October 2020 – Everything You Need to Know

Section 16 of the Income Tax Act (ITA), 1961

All about Online Income Tax Calculator

Types of Income Tax Return (ITR) Forms

Sub-sections Under Section 80C of the Income Tax Act, 1961

How to Save Tax on Salary Arrears?

What are the Tax Benefits of Sukanya Samriddhi Yojana (SSY)?

What is the Difference between Form 16 and Form 16A?

All You Need to Know About Section 80C

Received an Income Tax Notice? Your Guide to Understanding Intimations under Section 143 (1)

How to Check Income Tax Refund Status Online in India

Tax Planning and Tax Benefits of Life Insurance

Do Beneficiaries Pay Taxes on Life Insurance?

Tax-Savings Investments and Options in India

What is Section 10D of the Income Tax Act?

Understanding Tax Exemptions in ULIP (Old and New)

Impact of GST on Life Insurance in India

How to Get Form 16?

Difference Between Gross Income & Total Income in Calculating Income Tax

Income Tax Deductions & Exemptions under Sections 80C, 80D & 80DDB for FY 2020-21 & 2021-22

How to File Income Tax Return - Everything You Need To Know

Section 80E: Tax Exemption on Interest on Education Loan

9 Point Guide on how to File Income Tax Return Online

Tax Structure in India

Penalty For Late Filing TDS Return

Pradhan Mantri Suraksha Bima Yojana

A Complete Guide for Filing ITR 3 Form

Role of Life Insurance in Your Financial Portfolio

How To Save Tax Better with 80C

Tax Saving Options other than Section 80C

What is the Difference Direct Tax and Indirect Tax

52 Weeks Savings Plan: Daily Savings Plans for a Better Tomorrow

Tips to plan your savings in 2019

Income Tax Exemption for Physically Handicapped Dependent

Tax Benefits of ULIP Plans Available for NRIs

5 Unusual Investments You Didn't Know for Saving Taxes in India

Difference between Section 80C, 80CCC, 80CCD & 80D

What is Salary Protection Insurance and Why You Need It

How Much Money This Budget 2019 Can Help You Save

Tax Saving Options for Salaried Employees

Saving Income tax in 2017 - 18

Financial Planning and Best investment options for Housewives

Guide for Tax Calculation on your Salary

How can I get Form 16B from traces?

Form 16, Form 16A, and Form 16B?

Income Tax Deduction Under Section 80CCC In India

Income Tax Slabs and Rates in India for FY 2021-22/AY 2022-23

How to e-Verify your Income Tax Return

Save Income Tax by 31st March: Here Is a Checklist

How to View 26AS and Download Form 26AS Online?

What Investment Options Come with Tax Incentives?

Investment Proofs You Need Submit To Lower TDS Cut From Your Salary

5 Popular Tax-Saving Schemes in India

Can You Get Term Insurance Without Income Proof?

ITR 1: Sahaj Form

Interest Imposed Under Section 234A, 234B and 234C

Are Financial Planning and Tax Planning the Same Thing?

ITR 2 Form – Complete Guide

How to File Income Tax Return for First Time Tax Payers

ITR-6: Guide to filing ITR-6 Form online

What is Tax Evasion and What Are The Penalties For Tax Evasion In India?

Tax Saving Guide for 2019-20

Tax Benefits for Startups in India

How to Save Income Tax with Insurance

How to View 26AS and Download Form 26AS Online

What is ITR & How to File Income Tax Return

How do I Calculate My Term Insurance Premium

Tax Deductions You MUST Know

What is TDS Slab?

What is Section 80C Deduction?

TDS Due Dates of FY 2020-21 For Return Filing

Income Tax Deductions Under Section 80C

Things to Do After Filing Income Tax Returns

Income Tax Filing Using Multiple Form 16

What Is Advance Tax and How Is It Calculated?

How to Check Income Tax Returns Status Onine?

Tax-Free Income in India

Top 8 Tax-Saving Methods in India- Budget Planning

What is Form 16A?

How to File ITR Online

Section 44AD of Income Tax Act for AY 2020-21

आयकर स्लैब 2021-2022

Section 80D - Medical and Health Insurance Tax Benefits Under Section 80D

How to Check Income Tax Refund Status Online in India

Tax Season Is Coming- Know How to Save Tax

What To Do If Your TDS Is Not Deposited With The Government?

What is TDS Exemption Limit?

धारा 80डी आयकर अधिनियम, 1961

Section 80G of the Income Tax Act

How To Save Tax Using Life Insurance?

9 Income Tax Myths That Could Cost You Money while Filing returns

Everything You Need to Know About Tax Benefits of National Pension Scheme (NPS)

Tax Saving for Self Employed in India

What is Section 80C - Explained in Detail

Income Tax Benefits for Doctors

List of Important Income Tax FAQs

Why Tax Planning Should Be an All-year Round Activity

What is Tax Deduction at Source (TDS)?

What is the Percentage of Tax Deducted at Source (TDS)?

What is Form 26AS - All You Need To Know

How to Download Form 16?

9 Tax Changes in Budget 2019 that may Impact Your Personal Financial Planning

Presumptive Taxation for Business and Profession

What is HRA (House Rent Allowance) and How is HRA Exemption Calculated?

How to File Form 16 for Salaried Employees?

What is Section 80C Deduction Limit?

What is Challan 280? How to Pay your Income Tax Online with Challan 280?

Income Tax Exemption for Disabled

How to File Income Tax Return without Form 16

Section 10 (10d) of Income Tax Act, 1961 on Payouts of Life Insurance Policy

7 Important Things to Remember While Investing in a Savings Investment Plan

How to e file ITR on Income Tax Government Portal

Financial Benefits and Government Schemes Every Woman in India Should Know

Income Tax Deductions for Disabled Person Under Section 80U

Tax Saving Tips: Best Ways to Save Income Tax for 2021

How to File Form 10E for Tax Relief on Salary Arrears?

Section 80C Deductions as per Income Tax Act, 1961

A Comprehensive Guide to Understand the ITR 7 Form

Home Investment Plan to Buy Dream Home

Income Tax Filing For NRI in India

Guaranteed Return Plans-Why is it a must for you?

What is the TDS Rate on Salary?

What are the Different Types of Taxes in India?

How to Pay Advance Tax Online in India

Insurance and Endowment: Everything You Need to Know!

Have You Considered Term Insurance a Part of Your Tax Planning?

How to File TDS Return?

Problems People Face with Tax Returns after a Job Change

What is Section 195 of the Income Tax Act? TDS on Non-Residents of India

What is Section 80CCC of the Income Tax Act 1961

What are Direct Taxes? How to Avoid being Overtaxed?

All about TDS on Salary under Section 192 – Kotak Life

Investing Lump Sum Amount

Why January Is an Important Month for Saving Tax?

Types of Riders in Insurance Policy

Tax Exemption and Scope of Coverage

Difference between Section 80C and 80CCC of the Income Tax Act, 1961

E-Filing of Income Tax Returns in India

How to save tax for salaried person?

What is Form 16B?

A Guide to Life Insurance Policy’s Tax Benefits and Taxability

What is TDS Refund Process?

How to Claim TDS Refund for Excess TDS Deduction?

What is the Last ITR Filing Date and Penalty for Late Filing of ITR?

Budget 2019: Impact on the Common Man in India

When Should TDS be Deducted and Who is Liable to Deduct it?

Union Budget Highlights – 1st February 2022

धारा 80सी आयकर अधिनियम, 1961

All about TDS Payment Online & Due Dates

Why is Form 16 Important?

How to file Form 16 online?

What is ITR 5 Form and How to File ITR 5?