Tax Benefits under Term Insurance

Understand the tax benefits that you get for buying a term insurance. Know the other key benefits of term insurance.
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Tax Benefits under Term Insurance
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3 min
02-September-2024

Term insurance is a type of life insurance policy that provides financial coverage to the policyholder’s family in case of their untimely demise. In addition to financial security, term insurance policies also offer some tax benefits to policyholders. Let us take a closer look at what is term insurance, its benefits, and the tax benefits of term insurance.

What is term insurance?

Term insurance is a life insurance policy that provides coverage for a fixed period, typically ranging from five to 30 years. The policy provides financial security to the family in case of the policyholder’s sudden demise. In addition to providing coverage, term insurance policies also offer tax benefits to policyholders. You also get the option to choose from different types of term insurance policies to get the right coverage for your requirement.

Benefits of term insurance

Term insurance offers several benefits to policyholders, such as:

  1. Financial security: Term insurance policies offer financial security to the policyholder's family, ensuring that they have a good financial backup during critical times.
  2. Affordable premiums: Term insurance premiums come at relatively affordable premiums when compared to other life insurance policies like endowment and unit-linked insurance plans.
  3. Flexibility: Term insurance policies come with flexible terms and customisable add-on features, allowing policyholders to choose the options that best suit their needs.

Term insurance tax benefits under different income tax sections

Term insurance policies are eligible for tax benefits under two sections of the Income Tax Act of India. Here are the tax benefits of term insurance:

Section 80C:

Policyholders can claim a tax deduction of up to Rs. 1.5 lakhs for premiums paid on your term insurance plan under Section 80C of the Income Tax Act. This section also offers deductions for other investments and payments, such as:

  • Public Provident Fund (PPF)
  • Employees' Provident Fund (EPF)
  • Unit Linked Insurance Plans (ULIPs)
  • Equity Linked Savings Schemes (ELSS)
  • Home loan repayments
  • Children's tuition fees
  • Life insurance premiums

Section 80D:

Policyholders can claim deductions on the premiums paid for health insurance policies that come as add-ons with term insurance policies.

Section 10 (10D)

Section 10(10D) of the Income Tax Act, 1961, deals with the tax exemption on proceeds from life insurance policies. Tax benefits of term insurance are considered under different section of the Income Tax Act. According to this section, any amount received from a life insurance policy, including bonuses and maturity benefits, is exempted from tax. The Section 10(10D) exemption provides an incentive for individuals to purchase life insurance policies to secure the financial future of their loved ones.

Term insurance policies provide financial security to policyholders and offer tax benefits as well. By choosing a term insurance policy, policyholders can ensure that their loved ones stay financially secure in their absence. Choose a term insurance policy that best meets your requirements and ensures that you and your family stay well protected even during uncertain times.

Frequently asked questions

Is term insurance covered under 80D?

No, term insurance is not covered under Section 80D of the Income Tax Act, 1961. This section deals with tax benefits on health insurance premiums and medical expenses.

What is the 80D tax benefit?

Under Section 80D, individuals can claim a tax deduction on the premiums paid for health insurance policies. The deduction can be claimed for self, spouse, dependent children, and parents. The tax benefit can go up to Rs. 25,000 for individuals and Rs. 50,000 for senior citizens and very senior citizens.

Can I claim both 80D and 80C?

Yes, taxpayers can claim both Section 80D and Section 80C tax benefits on their income tax returns. While Section 80D provides deductions on health insurance premiums, Section 80C provides deductions on investments and expenses such as life insurance premiums, PPF contributions, and tuition fees. However, there are limits to the total deduction available under both sections.

What is the limit of 80D term insurance benefit?

As mentioned earlier, term insurance is not covered under Section 80D; hence no deduction is available for term insurance premiums. However, if you have a term insurance policy that also provides critical illness cover, you can claim a deduction for the critical illness part under Section 80D. The deduction can be up to Rs. 25,000 for individuals and Rs. 50,000 for senior citizens.

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Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Limited, ICICI Lombard General Insurance Company Limited, HDFC ERGO General Insurance Company Limited, Tata AIG General Insurance Company Limited, The New India Assurance Company Limited, Cholamandalam MS General Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited, Manipal Cigna Health Insurance Company Limited and Care Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services.  Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

Note – While we have made all efforts and taken utmost care in gathering precise information about the products, features, benefits, etc. However, BFL cannot be held liable for any direct or indirect damage/loss. We request our customers to conduct their research about these products and refer to the respective product’s sales brochures before concluding their sale.