Summary
Buying term insurance is a great way to ensure that your family has a financial cushion to fall back in case of any unpleasant eventuality. But do you know that you can avail of tax benefits on your term insurance as well? Read on to know more about it.
Term insurance is one of the most popular life insurance types. Many people prefer buying a term plan over types of policies because of the following reasons
● Term insurance can be a great way to provide financial support to your loved ones even when you are not around.
● The premium of term insurance is relatively much lower than other life insurance policies.
● Term insurance can have higher death benefits and additional riders in comparison to regular life insurance.
In addition to these points, term insurance can also be used for availing certain tax exemptions, as discussed below
Exemption under Section 80C
A term insurance policyholder can avail of income-tax deductions under section 80C of the Income-tax Act of India. This deduction can be availed by
● the policyholder
● the wife or husband of the policyholder
● children of the policyholder
In the case of Hindu Undivided families (HUF), any family member can receive tax benefits under section 80C.
However, you must understand the following clauses before claiming tax deductions.
● For policies issued before April 1, 2012
Tax deduction applies for the total premium value to a maximum of 20% of the sum assured.
● For policies issued on or after April 1, 2012
i. Tax deduction applies for the total premium value to a maximum of 10% of the sum assured.
ii. If the policyholder suffers from severe illness or disability, then a tax deduction is applicable if he/she haven’t paid premiums amounting to 15% or more of the total sum assured.
Exemptions under Section 10 (10D)
Under Section 10 (10D) of the Income Tax Act, the amount received under death benefit by the family members is tax-free.
However, the clause is not applicable in the following conditions.
● Amount received under Section 80DD (3) or 80DDA (3)
● Amount received under any Keyman insurance policy.
● Term insurance issued on or after April 1, 2012. In such cases, the exemption is allowed if the total premium paid is less than 10% of the sum assured.
Exemption under Section 80D
Tax exemptions under Section 80D can be claimed on term insurance only if you have an additional health cover like a critical illness rider. The benefits can be availed by
● the policyholder
● the spouse of the policyholder
● the dependent children of the policyholder
● the parents of the policyholder
Again, exemptions under this section are subject to specific clauses that are mentioned below.
● The maximum amount of the tax deduction allowed under this clause is Rs 25,000.
● You can avail of an additional tax benefit of Rs. 25,000 if you have purchased a health insurance policy for senior citizen parents.
Having discussed the various tax benefits that you can avail of on a term insurance plan, it is advised not to look at term insurance as a tax-saving instrument. Instead, consider the tax benefits as an additional gift that sweetens the deal. Remember, to enjoy a cup of coffee. Your priority should be the coffee, not the cream.
