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Term Insurance Tax Benefits

Term insurance tax benefits can allow you to reduce your tax liability and save money. Section 80C allows a deduction of up to ₹1,50,000 for premiums, and Section 10 (10D) covers tax-free maturity proceeds. If your policy includes health riders, you can also claim deductions under Section 80D.

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  • Updated on: Oct 24, 2024
Get Insured with Kotak Term Plan

Term insurance is a tax-saving instrument that can help you reduce your final tax burden. You can avail of term insurance tax benefits under sections 80C, 80D, and 10 (10D) of the Income Tax Act of 1961. These benefits are available in the form of deductions and exemptions. For instance, if you pay term insurance premiums, you can avail of the deduction under Section 80C. On the other hand, if you receive a maturity amount, the entire proceeds will be exempt under Section 10 (10D).

However, there are certain conditions under each section regarding the maximum deduction amount, mode of payment, policy inclusions, and more. Let’s understand these conditions in detail.

Term Insurance Tax Benefits Under Different Sections of the Income Tax Act, 1961

The government has introduced the following provisions under tax laws to encourage investment in term insurance. These provisions help reduce tax liability in the short term and promote long-term financial security for the Indian population by increasing the adoption of term insurance.

Term Insurance Tax Benefit Under Section 80C

Section 80C of the Income Tax Act provides a deduction of up to ₹1.5 lakh for the premiums paid towards life insurance policies, such as term and whole life insurance plans. This deduction can be claimed by an individual or a Hindu Undivided Family (HUF). However, to avail of term insurance under 80C tax benefit, you should meet the following conditions:

  • The annual premium should be less than 10% of the assured amount. If the premiums do go beyond 10%, deductions will be made proportionately.

  • 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 term insurance tax benefits on premium payments if the policy is voluntarily relinquished or canceled before the two-year mark, according to Section 80C (5).

Term Insurance Tax Benefit Under Section 80D

If you have purchased a term insurance plan with a built-in critical illness cover or any other health-related rider, then the premium paid for these riders can be claimed as a term insurance tax exemption under Section 80D.

  • The maximum deduction available under this section is ₹25,000 for individuals under 60 and ₹50,000 for senior citizens.

  • An additional amount of ₹25,000 is available as a deduction for premiums paid for parents (₹50,000 for senior citizen parents).

  • The premium must be paid in any mode other than cash.

Payments Eligible for Deductions Under Section 80D

As discussed in the previous sections, you can avail yourself of deductions for term insurance under 80D. The premium payments will, however, be subject to the following eligibility criteria:

  • If you are an individual below 60 years old, premium payments made for self, spouse, and dependent children will be deducted from your total income but only up to ₹25,000.

    For instance, if you have a gross income of ₹9,00,000 and pay a term insurance premium of ₹30,000, your net taxable income will become ₹8,75,000 (₹9,00,000 - ₹25,000).

  • Further, there is a higher upper limit of ₹50,000 for senior citizens. This means that if you are above 60 years of age, you can avail of a deduction of up to ₹50,000 for term insurance premiums.
    Taking the above example, your net taxable income will become ₹8,70,000 (₹9,00,000 - ₹30,000)

  • Suppose you are a senior citizen and have to incur medical expenses that are not covered by insurance. In that case, you can still avail ₹50,000 under Section 80D.

  • You can claim an additional deduction of ₹25,000 for premiums paid for parents. If your parents are senior citizens, you can claim an even higher deduction of ₹50,000.

    Say you are above 60 years old and are paying premiums for both yourself and your senior parents. Total ₹1,00,000 (₹50,000 + ₹50,000) will be allowed under Section 80D.

  • Section 80D deductions are also available to HUF members. The upper limit is ₹25,000 if members are below 60 years and ₹50,000 if they are senior citizens.

Term Insurance Tax Benefit Under Section 10 (10D)

Section 10 (10D) exempts the maturity proceeds of a life insurance policy. This provision applies to both individual and HUF taxpayers, subject to the following conditions:

  • If the sum assured is at least 10 times the annual premium paid, then the entire maturity amount the policyholder receives is tax-free.

  • In case the maturity payout is above ₹1,00,000, TDS will be applicable at the rate of 1%.

Tax Benefits on Term Insurance Riders

Insurance riders are additional features that policyholders can add to their base insurance policies to customize coverage according to their specific needs. While riders offer enhanced protection, it is essential to understand their tax implications to make informed decisions.

Critical Illness Rider

Premiums for critical illness riders are eligible for term insurance tax benefits under Section 80D. The lump-sum amount received upon diagnosis of a critical illness is tax-free under Section 10 (10D).

Accidental Death Benefit Rider

Premiums paid for accidental death riders are also eligible for deductions under Section 80C. The sum assured, paid in the event of accidental death, is exempt from income tax under Section 10 (10D).

Waiver of Premium Rider

Premiums for the waiver of premium rider are deductible under Section 80C. In case of total and permanent disability of the policyholder, future premiums may be waived off, providing financial relief without tax implications.

How to Claim Term Insurance Tax Benefits?

Term insurance tax benefit sections 80C, 80D, and 10 (10D) lead to significant financial advantages. To successfully claim these advantages, you should be diligent and keep a record of all premium payments made for yourself, your spouse, dependent children, and parents. If you want to avail of term insurance tax benefit 80D deductions, you check if your policy contains any health riders.

It is also necessary that you meet all premium payment timelines. You can prepare in advance by determining the premium amounts using a term insurance calculator.

Finally, you should submit all relevant details and documents, like premium receipts, while filing income tax returns. Filing on time and accurately disclosing all information helps avoid penalties and ensures a smooth process. You can also seek professional advice if needed.

Final Thoughts

While tax benefits make term insurance an attractive financial instrument, the real focus should be on securing adequate coverage for your family’s future. Consulting with a financial advisor can provide personalized guidance based on your financial goals and circumstances. You can select from a range of available plans such as ₹1 crore term insurance, ₹2 crore term insurance, term insurance for smokers, and more. The key is to compare multiple insurers and make an informed decision that balances premium costs with tax advantages.

FAQs on Term Insurance Tax Benefits


1

What are term insurance tax benefits?

Term insurance tax benefits refer to deductions available on premiums paid towards term insurance policies and tax-free proceeds received by beneficiaries upon the policyholder’s demise.



2

Who is eligible to claim term plan tax benefits?

Any individual who pays premiums towards a term insurance policy, whether for themselves, their spouse, or their children, is eligible to claim term insurance tax benefits.



3

Are there any instances where beneficiaries might have to face tax implications with a term plan?

No, the death benefit received by beneficiaries under a term insurance policy is typically tax-free. However, certain exceptions may apply, such as if the policy has been assigned for consideration.


4

Is it advisable to purchase a term plan primarily for its tax benefits based on term insurance?

While tax benefits are a significant advantage of term insurance, it is advisable to purchase a term plan primarily for its financial protection benefits rather than solely for tax-saving purposes.


5

Do I need to pay taxes on the claim amount from term insurance?

No, the claim amount received from a term insurance policy is generally tax-free for the beneficiaries under Section 10(10D) of the Income Tax Act.


6

How can I maximize term insurance tax benefits?

You can maximize term insurance premium tax benefits by ensuring that your premiums do not exceed the specified limits and choosing the appropriate coverage based on your financial needs.


7

Will I continue to receive tax benefits if I cancel the term insurance policy?

No, once you cancel a term insurance policy, you will no longer be eligible for tax benefits on the premiums paid.


8

Can I still avail of tax benefits on term insurance after terminating the policy?

No, term life insurance tax benefits on premiums are available only for active policies. Once the policy is terminated, the tax benefits cease to apply.


9

Can I claim both 80C and 80D?

Yes, you can claim deductions under both Section 80C (for term insurance premiums) and Section 80D (for health insurance premiums) simultaneously, provided you meet the eligibility criteria for both deductions.

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

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