Having a life insurance policy is a smart step towards securing your dependents financially when the time comes. Beyond the financial assistance it provides, term insurance offers you tax benefits and a sense of contentment. Keep reading to discover everything about these tax benefits associated with term insurance.
How
Term Insurance is a type of life insurance that provides coverage for a specific period. During unfortunate circumstances like the insured’s death, the insurance company pays his beneficiaries the death benefit. Term life insurance is a pocket-friendly option, and it comes with different tax benefits.
There are three sections of the Income Tax Act under which you can avail of tax benefits.
● Section 80C
The most common tax benefit for any policyholder of a term insurance plan comes under Section 80C of the Income Tax Act 2016. Under this Section, you can get tax benefits of up to Rs. 1.5 Lakh from the premiums you pay throughout the policy period. Remember that your premium should constitute less than 10% of the total sum assured when claiming the deduction.
● Section 80D
While tax deductions under Section 80D of the Income Tax Act apply to premiums for health insurance policies, policyholders of term insurance with Critical Illness cover, Surgical Care cover, and similar covers can save up to ₹25,000 on paid premiums. The deduction limit for senior citizens’ parents has been raised to ₹50,000.
Death benefit: Under Section 10(10D) of the Income Tax Act, the money the designated nominees receive upon the policyholder’s death is tax-free.
Surrender Benefit: If the policy is surrendered prior to maturity, the surrender benefit could be subject to partial or full taxation, depending on the specific terms and conditions outlined in the policy.
Term insurance tax benefits are applied to certain expenses subject to a few eligibility criteria. The following points feature the eligibility parameters you need to satisfy to receive the tax benefits on your term insurance policy:
- You must be a taxpayer in India.
- You must be a resident of India or a member of a Hindu Undivided Family (HUF).
- Indian citizens above 60 years of age and with taxable income are also eligible.
- Non-residents of India or NRIs who live in India, earn their income here, and pay taxes are also eligible for tax deductions under Section 80C.
- You must have a term insurance policy issued in your or your dependents’ name.
- You must not surrender your existing term insurance policy before the end of term C.
The Bottom Line
To conclude, there are several types of tax benefits that you can receive as a policyholder of term insurance plans. These tax benefits, however, come under different sections of the Income Tax Acts. Ensure you know these benefits and capitalise on them to save your hard-earned money.
