term insurance tax benefits

Know All Terms and Conditions of Term Insurance Tax Benefits

Tax write-offs allow you to decrease your taxable income. There are numerous ways to reduce your tax burden. You can avail of tax deductions under the Income Tax Act, 1961. Out of the many tax-saving investment instruments available in the market, a term insurance plan is one of the most popular options today.

Definition of term insurance 

A term plan is a type of life insurance policy that provides life coverage to the policyholder for a specific duration. One of the significant advantages of investing in a term insurance policy is that it offers high coverage at an affordable premium. A term insurance plan only provides a death benefit to the policyholder’s nominee if the insured passes away during the period of the policy. Here, the insurer is not liable to pay you any maturity benefit if you survive the policy’s tenure unless you have purchased a term insurance plan with the return of the premium option.

Now, when you know what a term insurance plan is, let us understand the tax benefits it can offer.

  • Tax exemption under Section 80C

The term insurance tax benefit under Section 80C of the Income Tax Act, 1961 allows you to claim a maximum deduction of INR 1.5 lakh for the premium paid toward your term plan.

Terms and conditions under Section 80C

The premium that you pay toward your offline or online term policy should be equal to or less than 10% of the coverage, also known as sum assured. If your total annual premium exceeds 10% of the sum assured, you can claim deductions on the amount equivalent to 10% of the sum assured. You should also note that if your policy is issued before March 31, 2012, the total of your annual premium should not exceed 20% of the sum assured. Moreover, if you terminate or voluntarily surrender the policy within two years of its inception, you will not get any tax exemption on the premiums that you pay.

  • Tax deduction under Section 10(10D) 

The term insurance tax benefit under section 10(10D) of the Income Tax Act, 1961 applies to the death benefit that your nominee will receive in case of an unfortunate incident. Here, the entire death benefit is tax-exempt.

Terms and conditions as per Section 10(10D)

Your nominee can avail of a tax exemption under this section only if the premium is less than 10% of the life coverage sum, or if the sum assured is a minimum of ten times the premium. The insurer will deduct 1% Tax Deducted at Source (TDS) if they have your PAN details and if the payment exceeds INR 1 lakh.

  • Tax advantages according to Section 80D

Generally, under this section, the tax benefits are applicable only for health insurance plans. However, certain term plans provide a tax exemption as per Section 80D. This is applicable if you have bought any health-related rider, such as critical illness benefit or hospital cash rider along with your online term policy.

Terms and conditions of tax exemptions as per Section 80D 

You can claim a tax exemption for yourself up to an amount of INR 25,000 if your age is below 60. If your age is 60 or more, you can claim a deduction of INR 50,000.

It is essential to keep these points in mind when it comes to availing of tax deductions in a term plan. However, do not focus only on the tax benefits offered by the plan. Remember: the core objective of buying term insurance is to ensure the monetary stability of your loved ones.

Improper eating habits, unhealthy lifestyles, and a lack of work-life balance has made it essential to buy term insurance online. Protect your family’s financial future so that they can live a financially independent life, especially when you are not there to look after them. The death benefits that your nominees receive will be a breather for them, as they will be able to maintain their lifestyle and fulfill their financial aspirations.

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