Tuesday , November 30 2021

How Term Insurance Can Help You Save Tax?


A term insurance plan is highly affordable, and you can likewise get extra advantages by including additional add-ons/riders in it. You ought to likewise realize that pure term insurance has no cash value i.e., it doesn’t give any survival benefit. However, you can get numerous different advantages, like term insurance tax benefits, by putting funds into an appropriate plan. Before digging into how term plan tax benefits, let us make an analysis of what a term plan involves. A term insurance plan is fundamentally a type of life insurance that gives coverage to a policyholder to his/her desired timeframe or ‘term’. Unlike traditional life insurance policies, the premiums for term plans are significantly more affordable. They are also more accessible and offer more flexibility to the policyholder.

Concerning term plan tax reductions, the Indian government and the Income Tax Department have given out a couple of provisions to avail deductions for your term insurance premium instalments. These deductions, regardless of whether taken separately or altogether, significantly bring down your taxable income and hence, help you save taxes for each year that your term plan continues. Regardless of whether you avail a term plan for yourself or your family, your premium instalments will be qualified for the previously mentioned tax deductions.

Facts related to Term Insurance Tax Benefits U/S 80C

  1. The yearly premiums you pay for a term insurance plan should not surpass ten percent of the chosen sum assured. If it surpasses, then insurance tax benefits under Section 80C will be applied proportionately.
  1. For term insurance plans issued before March 31, 2012, the term insurance benefits in income tax are applicable if the yearly premium is under twenty per cent of the sum assured.
  • Section 80C: One of the most widely recognized deductions availed by several term insurance policyholders in India is that offered under Section 80C of the Income Tax Act, 1961. To avail a term insurance plan, the policyholder is required to pay a monthly amount to the insurer, known as premiums. Under Section 80C, these premiuminstalments for life coverage can be deducted from the policyholder’s overall income, for a sum as high as Rs. 1.5 lakh in a financial year. Subsequently, this decreases his/her overall taxable income and comes as a huge benefit for the term plan policyholder. This allowance under Section 80C can be benefited by both individuals as well as Hindu Undivided Families (HUFs). As far as individual policies, tax deduction can beclaimed by an individual, his/her spouse as well as his/her children.
Age Description Premium Paid For Upper Limit to Term Insurance Tax Benefits u/s 80D
Self, spouse and children (dependent) Parents
When all the covered individuals are under 60 years of age Rs. 25,000 Rs. 25,000 Rs. 50,000
When your parents are above 60 years of age Rs. 25,000 Rs. 50,000 Rs. 75,000
When both you and your parents are above the age of 60 Rs. 50,000 Rs. 50,000 Rs. 1,00,000


  • Section 80D: It primarily permits tax deductions on the premiums paid for health insurance. It likewise gives insurance tax benefits, however, in an indirect way.

You can avail term insurance tax benefit under 80D if you have decided on health-related riders, like Critical Illness cover, Surgical Care cover and similar others. Hence, you can maximize tax savings with your term insurance premiums by choosing these riders while also getting health insurance cover.

  • Section 10 (10D) – While there are different term plan tax benefits to be benefited from, the basic role of a term insurance policy is to give monetary security to your beneficiaries. In case of your unfortunate demise, this monetary security is delivered to your loved ones in the form of a predetermined amount, known as the death benefit. The tax-saving benefit with this sum is that under Section 10 (10D), this whole sum is totally excluded from tax. This is also applicable for the maturity amount received at the end of a term plan with the money-back feature. 

Tax Benefits on Term Insurance Riders

Various term insurance riders are offered by insurance agencies to give supplementary coverage. However, their advantages are not restricted to strengthening a term insurance policy beyond its core features.

Depending upon the rider you select with a term plan and related conditions, you can avail additional term insurance tax benefits. Here are a couple of ways by which term plan riders can make you avail additional term life insurance tax benefits:

  1. Critical Illness rider, when added to your term plan, makes you qualified for tax deductions under Section 80D.
  2. Options like Return of Premium, when picked at the time of buying a term plan, increase its premium, thereby empowering you to save more money under Section 80C. You can check how the premium varies with the inclusion of riders using an online calculator.

Disclaimers –

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale Consult with your financial advisor before making any decisions on insurance purchase.

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