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Tax Benefits on Term Insurance

Feb 13, 2020 | 5 months ago | Read Time: 3 minutes | By iKnowledge Team
Term Insurance Tax Benefits

Term insurance serves as a financial cushion by offering coverage in case of the policyholder’s demise. However, unlike life insurance, term insurance provides coverage for a predetermined duration. Term insurance comes with a host of benefits – including but not limited to, a high sum assured, extremely affordable premium rates, enhanced coverage with riders and tax benefits.

Term insurance tax benefits, under Section 80C and 10(10D) are plentiful and can help policyholders reduce their tax burden by significant proportions.

Term Insurance Tax Benefits

While there are multiple tax benefits on term insurance that may be availed under certain conditions, there are, broadly speaking, two main tax benefits.

  • As per Section 80C of the Income Tax Act (ITA), term insurance tax deductions of up to Rs. 1.5 lakhs on premiums paid for one year can be claimed.
  • Under Section 10(10D) of the ITA, one can receive term insurance tax exemptions on the amount that is received at maturity from one’s term insurance policy.

Who Can Receive Term Insurance Tax Benefits?

Under Section 80C, both HUFs or Hindu Undivided Families and individual taxpayers can avail tax deductions on term insurance. Individual taxpayers can claim deductions under Section 80C on the premiums paid for:

  • The taxpayer themself.
  • The spouse of the taxpayer.
  • The children of the taxpayer.

Conditions for Term Insurance Tax Deductions

There are certain conditions one would need to meet to be eligible for tax deductions under Section 80C.

  • For those who have taken out a term insurance policy after the 1st of April 2012, tax deductions can be claimed if the premiums paid are not greater than 10% of the ‘Sum Assured’.
  • For those who issued their insurance policy on or prior to March 31, 2012, tax deductions are valid if the premiums paid towards the policy do not exceed the limit of 20% of the Sum Assured.
  • For those with severe disabilities or specific illnesses, tax deductions are applicable if they haven’t paid premiums that amount to 15% or more the Sum Assured at maturity. This clause remains valid for a term insurance policy issued on or after April 1, 2013.

Conditions for Term Insurance Tax Exemptions

Policyholders are not only eligible for tax benefits but also term insurance tax exemptions. This is specified under Section 10(10D) of the ITA, according to which, the payout received by a taxpayer from an applicable insurance policy, can be exempted from taxation. Once again, there are circumstances for this to become applicable. The following term insurance proceeds are not eligible for taxation:

  • Any amount received by the taxpayer through a Keyman or Key Person Insurance Policy. This is a policy where an employer chooses to insure a key proprietor, employee or business partner upon whom the successful operation of their business rests. Keyman Insurance is currently neither tax-deductible nor exempt in India.
  • Any sum received apart from the death benefit, from a term insurance policy which was issued to the policyholder on or after April 1st, 2003, but before or until Match 31st 2012.
  • Additionally, exemptions are not applicable to these amounts if, during the policy period, the total premiums paid towards the policy were greater than 20% of the received Sum Assured.
  • In the case of the term policy being issued on or after April 1, 2012, tax exemption is applicable only if the overall premiums paid do not go over 10% of the Sum Assured.

In addition to Section 80C and Section 10(10D), one can also receive tax benefits on a term insurance policy, if they have opted for a health-related rider.

  • Examples of a health-related rider include: Critical Illness Riders, Surgical Care Riders, Hospital Care Rider.
  • Tax benefits of up to Rs. 25,000 can be availed under Section 80D.
  • Deductions can be claimed on premiums paid towards a policy taken out for the assessee, his or her spouse, dependent children and parents.

In conclusion, getting term insurance offers financial coverage in times of distress as well as tax benefits. Aegon Life’s Term Insurance Plan provides term coverage at affordable prices until the policyholder turns 100 years of age, among many other benefits. Choose Aegon Life’s Term Insurance Plan to protect your loved ones and leave behind your legacy.


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