Term insurance, as we know, is a great tool to secure you and your loved ones financially. It provides cover in the form of a sum assured against the premiums you pay either in a single payment mode, monthly, quarterly, half-yearly, or annually. This cover can be claimed by your family in case something happens to you when the policy is active. Along with taking care of your monetary needs, term insurance also acts as tax saving schemes by rendering additional tax benefits.
There are sections under the Income Tax Act, 1961, which allow for an income tax deduction for term insurance and other such kinds of policies. Let’s find out how!
Premium Payment and Tax Benefits
One can claim tax benefits for the premiums they pay. You get these tax benefits under section 80C of the Income Tax Act, 1961, where you can avail deductions up to Rs. 1.5 lakhs in a financial year. This amount will total all the deductions from investments in various other areas mentioned under this act.
Section 80C is seen in conjunction with Section 80CCC and 80CCD, which means the tax deductions you avail under all the three sections should not be beyond a total of Rs.1.5 lakhs.
Income tax deductions for term insurance under this section come with certain terms and conditions, which are vital for you to know before claiming any such benefit.
- For any policy that has been issued on 1st April 2012 or after it, the sum of the premium paid through the policy should be 10 percent or less of the maximum sum assured to be able to get tax benefits.
- For any policy dated before 31st March 2012, the percentage becomes 20 percent or less.
- The HUF (Hindu undivided Family) can avail tax benefits under this.
- In case of a severe disability, you will be able to get benefits if the premium is up to 15 percent of the sum assured.
Tax-Free Payouts
As per section 10 (10D) of the income tax act of 1961, the sum assured given to the beneficiary or the nominee is free of taxes. Therefore, to offer a maximum 80D tax benefit, you get access to the total amount without having to pay any taxes. However, there is one clause here which states that for the sum to be tax-free, it must be ten times the annual premium that is paid.
Riders and Tax Deductions
Deductions can also be claimed under section 80D of the act. However, it is believed that this is usually specific to health insurance products. Under 80D tax benefits, the term insurance riders become beneficial. One can add a health-related rider such as the critical illness rider to claim income tax deductions for term insurance with section 80D.
Term insurance, thus, comes with additional benefits apart from the primary purpose that it promises to fulfill. These tax saving schemes are a blessing in disguise. With proper awareness and education about tax benefits, you and your loved ones can enjoy the maximum advantages of term insurance and lead a stress-free and financially safe life.
