The Tax Benefits Of Term Insurance

The Tax Benefits Of Term Insurance


In what may be the most difficult time for your family in your absence, your family can benefit greatly from term life insurance. It is a fantastic way to guarantee that you are there for your loved ones at every turn, even when you may have passed away.

At the same time, saving money is also a fundamental aspect of life for everyone. When it comes to tax savings, every individual seeks to reduce tax liability. In addition to receiving life insurance, you can also receive tax benefits from term insurance. However, you should know several tax considerations concerning term insurance benefits.

What exactly is term insurance?

Term insurance, the simplest type of life insurance policy, provides coverage for a specific period in exchange for regular premium payments. According to the policy inclusion provisions, the policy beneficiary will get a death benefit if the life insured dies during the policy period.

You can obtain additional benefits by including add-ons/riders with a term insurance policy, which is very affordable. You should also be aware that pure-term insurance has no cash value or survival benefit. Investing in a suitable plan offers numerous additional advantages, such as tax benefits for term insurance.

Tax Advantages of Term Insurance

Term insurance provides many tax benefits. A term insurance calculator can lower your tax burden and protect your family’s finances. A term insurance calculator can reduce your tax burden and protect your family’s finances.

To answer the related questions, let’s examine the tax benefits of term insurance in depth:

Section 80C

Section 80C of the Income Tax Act of 1961 governs the most real tax benefits available to Indian taxpayers who purchase term insurance. Many consider this Section to be the most popular tax-saving strategy.

This Section provides tax benefits of up to Rs. 1.5 Lakh for term insurance premiums paid when buying plans. This Section’s maximum tax deductions include PPF investments, tax-saving Fixed Deposits, and other tax-saving vehicles. You can maximise the tax benefits of term life insurance by investing in a substantial life cover for yourself, ultimately benefiting your family. * Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.

Significant Facts Regarding the Tax Advantages of Term Insurance U/S 80C:

  1. The annual premiums for a term insurance policy can be at most 10 per cent of the selected sum assured. If it exceeds, the Section 80C tax benefits for term insurance will be applied proportionally.
  2. For term insurance plans issued before March 31, 2012, the term insurance tax benefits are applicable if the annual premium is less than 20% of the sum insured.

Section 10 (10D)

In addition to the term insurance tax benefits, the life insured and their family can save money through tax exemptions. This is addressed in Section 10 (10D).

Term insurance death or maturity benefits are tax-free. The same criteria apply. Term insurance tax benefits are unlimited. It means the term plan payout is tax-free. As a term insurance policyholder, you should know that Section 10(10D) tax benefits are also subject to certain conditions. It states that a term plan’s maturity or death benefits are exempt from taxation if the premium paid during the policy period does not exceed 20% of the predetermined sum assured.

Tax Advantages for Riders on Term Insurance

Insurance companies provide term insurance riders with extra coverage. Their benefits extend beyond enhancing a term insurance policy’s main properties.  Depending on the rider you choose for your term plan and the associated conditions, you may be eligible for additional tax benefits. Here are a few ways term plan riders can provide other tax benefits for term life insurance:

  • Section 80D allows tax deductions for term plans with Critical Illness riders.
  • Riders such as Return of Premium, when added to a term plan at the time of purchase, increase their premium, allowing you to save more under Section 80C. A term insurance calculator can determine the premium changes when riders are added to the plan.

Frequent Requested Information (FAQs)

  • What are term insurance’s tax advantages?

  1. Tax benefits, covered by the Income Tax Act of 1961, are available to term insurance policyholders in deductions and exemptions.
  • How can I maximise the tax benefits of term insurance?

  1. You can maximise your term insurance tax benefits by investing in a plan that meets your needs and utilising various other tax-saving tools or a tax professional for additional information.
  • Should I purchase a term plan based solely on tax benefits?

  1. Your decision to purchase a term plan should be based on the tax advantages of term insurance and other factors, such as the appropriate coverage, affordability, and satisfaction of your specific needs. Additionally, you should avoid making common mistakes when purchasing a term plan.