Answering Your Top Questions about Tax Benefits on Term Insurance Policies

Term Insurance: What is it? 

Term insurance is one of the common and simple forms of life insurance that provides financial protection to the policyholder’s family in the event of their death during the policy term. 

In simple terms, the nominee or the beneficiary will receive the death benefit in the form of the assured sum as specified in the policy if the insured person passes away during the policy period. 

Compared to other types of insurance, term life insurance is relatively cost-effective and comes with add-ons that allow the insured person to get benefits such as coverage for the nominee, coverage against critical illnesses, and the like. Besides, it is essential to note that a pure-term insurance plan does not offer survival benefits or returns but comes with tax benefits. Let’s understand it in detail.

Term Insurance Tax Benefits

Along with providing the insured with the death benefit, term insurance offers tax benefits in deductions and exemptions. So, it not only secures the future of your loved ones but also reduces tax liability. Let’s understand how. 

Benefits under Section 80C 

Section 80C of the Income Tax Act of 1961 allows several types of deductions, one of which is the premium paid against the term insurance policy. According to this section, the insured person can claim deductions of up to Rs. 1.5 lakhs for the premiums paid during the financial year from their total gross income. It is the most fundamental  that an insured person can take advantage of. 

Benefits under Section 80D 

You can avail tax deduction on your term insurance if you have health-related riders, such as a critical illness rider or a waiver of premium benefit rider. The premium on such riders is eligible for tax deduction under Section 80D of the Income Tax Act 1961 up to a maximum limit of INR 25,000 for individuals under 60 years of age and INR 50,000 for individuals above 60 years of age. 

Benefits under Section 10 (10D)

Section 10 (10D) of the Income Tax Act, 1961, states that the death benefit offered by a term insurance policy is exempt from tax (barring a few exceptional cases). It means the amount received as the death benefit will not be taxed. 

Eligibility for Claiming a Tax Benefit: 

Individuals and Hindu Undivided Families (HUFs) can claim deductions against premiums paid for a term insurance plan.

Frequently Asked Questions on Tax Benefits on Term Insurance Policies

How can I maximise the tax benefits of term insurance? 

 is the most affordable form of life insurance which allows you to pay a minimum premium amount and avail deductions under the aforementioned sections of the Income Tax Act. To get tax benefits from term insurance, purchase a good plan that meets your needs. Additionally, to maximise your tax benefits, you can invest the surplus amount in other tax-saving schemes, such as PPF, ELSS, etc. To get more information, you can also consult with a tax advisor.

Should I purchase a term plan solely for the tax benefits of term insurance? 

Tax benefits that come with a term insurance plan can be one of the important considerations, but there are other grounds for choosing it. As mentioned, term insurance offers financial protection to the insured person’s family in case the insured passes away during the policy term.  

Am I still eligible for tax benefits if I stop paying my term insurance premiums? 

No. The insured can avail tax benefits on term insurance premiums. So, if the insured person stops paying the premium, the policy lapses, and the life cover ceases to exist and so do the associated tax benefits. 

What will happen if the premium is paid late? 

The insured has a grace period to pay the outstanding term insurance premium. Once the payment is made within this time frame, there is no risk to any benefits associated with the policy, including the tax benefits of term insurance.

Will I still receive tax benefits if I cancel the term insurance coverage? 

The policyholder must pay the premium of their term insurance plan to receive benefits under Section 80C of the Income Tax Act, 1961. The tax benefit is based on the premium you pay in a financial year. The life cover under a term plan ends when the insured person stops paying premiums. In such cases, the nominee will not be eligible to receive the death benefit. 

Does Section 80C require me to pay GST on my term insurance? 

Yes. On the premium amount, applicable GST (Goods and Services Tax) and cesses are evaluated at the applicable rates.

How much income tax can I save by paying the premium for a term insurance policy? 

A term insurance policy’s ability to reduce your taxable income depends on several elements, including the kind of policy you have bought and the premium you pay in a financial year. You are eligible for a tax deduction of up to Rs. 1.5 lakhs against the premiums paid for the term insurance policy under Section 80C.

What will happen if I pay my term insurance policy premium after the due date?

You get a grace period of up to 30 days, however, it is best to pay the premium on time to continue enjoying life coverage as well as term insurance tax benefits