The main purpose and benefit of a term insurance plan are that they offer financial protection to your family even in your absence. In case any unfortunate event occurs, your family does not have to worry about fulfilling their financial requirements. There is another major advantage to term insurance that causes many individuals to opt for it, which is the term insurance tax benefit under Section 80D of the Income Tax Act. This Act has prescribed the different deductions and the conditions under which a policyholder can claim these benefits. Let’s take a detailed look at these benefits in this article.
Term insurance tax benefit under Section 80D
Section 80D of the Act usually caters to the health insurance sector. However, if you have taken a health-related rider with your term insurance plan, then you can avail of the tax benefits under this Section even if you do not have a health insurance plan. Mainly, it is the critical illness benefit rider that can help save tax in the following manner:
- The premium paid towards a critical illness term policy can be claimed as tax deductions for up to Rs 25,000 if the life assured and their spouse and children are under 60 years of age.
- If the policy is for dependent parents that are under 60 years of age, then an additional Rs 25,000 can be claimed as a tax deduction.
- If the parents are over 60 years of age, then the maximum tax deduction that can be claimed on their policy premium is Rs. 50,000.
- If the life assured is over 60 years of age and the parents too are over 60 years of age and are covered under a separate critical illness term policy, then the maximum deduction one can claim can go up to Rs 1 lakh.
Tax benefits on term insurance under other sections of the Act
While Section 80D is the main section to keep in mind for tax benefits on the term insurance premium, there are other sections in the Act related to term insurance that can greatly benefit you.
Tax deduction on the term premium
A term insurance policyholder can gain tax deductions of up to Rs 1.5 lakhs on their premium payment towards their term plan as per Section 80C of the Act.
No tax levied on the death benefit payout
When the life assured passes away, the nominee/s can make a death benefit claim and receive the sum assured on approval of the claim. As per Section 10 (10D) of the Act, the death benefit amount received is tax-free.
Tax-free maturity benefit
If you survive the maturity of your term insurance return to premium plan, then the maturity benefit you receive is also tax-free under Section 10 (10D) of the Act.
Other benefits of term insurance
Besides helping you save on tax, a term insurance plan can prove advantageous for you in several other ways. Let us explain a few such benefits to you.
Financial security for your family
A term insurance plan is a great way to ensure that your near and dear ones continue to be financially secure even in your absence. You can take the help of a term insurance calculator to better understand the planning that will be required to financially secure your family.
An efficient way to commit to savings
The ‘return to premium’ feature helps the policyholder hit two targets with one premium: the family gets life cover if the life assured passes away and if they survive the maturity of the policy, there is an assurance of the return of the premium.
Lower premiums for a higher life cover
The term insurance premium, when compared to the whole life insurance premium, is quite low. This makes it a more affordable and much-preferred option.
Important things to note:
- The term insurance calculator is an online tool that only provides an estimate. The actual figures may vary depending on a multitude of factors.
- The benefits related to tax and other factors mentioned throughout the article are subject to terms and conditions, as well as changes in prevalent tax laws.
Reach out to a financial consultant or a tax expert before going ahead with any major financial decisions.