Term insurance allows your family to avoid debt during a period when they’re in a financial crisis. repayment of debt is a financial goal, and a term plan allows them to fulfil that obligation. When you die, the assured sum received helps your family remain financially independent.
However, many people might not tell you that term insurance comes with a lot of tax-saving benefits. Term insurance plans are also a great tax-saving tool, and you can fulfil your responsibility of providing financial stability to your family.
This article discusses the various aspects in which you can avail of term insurance tax benefits as per the various mandates of the Income Tax Act of India. Therefore, if you’re looking to avail tax benefits with your term plan, make sure you read it till the end:
What is Term Insurance?
A term life insurance policy provides coverage, in exchange for regular payments of a premium, to an individual against the risk of death. If the insured person dies during the term of the policy, the nominee will be able to collect the death benefit on this policy.
Term insurance can help you in many ways, and it is very affordable too. Term insurance, which is pure insurance protection for death or terminal illness, cannot be cashed out. However, you can obtain other benefits, like tax benefits and credit shelter, if you invest it in a suitable plan.
What Are the Various Tax Benefits Available with Term Plans?
1. Tax Benefits Under Section 80C
A lot of people utilize the norms of Section 80C of the Income Tax Act to save taxes. As per this section, you can enjoy a tax deduction of Rs. 1.5 Lakhs for your investment instruments like EPF, ULIP, PPF, ELSS. It is also applicable to loan repayment, life insurance premiums, and so on.
This section also states that your term plan premiums are also eligible for tax deductions of up to Rs. 1.5 lakhs. However, it’s subject to certain terms and conditions such as:
- Your yearly premiums should not exceed 10% of the assured sum otherwise a deduction of 10% will be applied
- If your policy is issued before 31st March 2012, deductions will only be applicable when your yearly premiums do not exceed 20% of the assured sum amount
- If you surrender or terminate the policy in a timeframe of two years after the purchase, you won’t get any tax benefits on your premium payments
Therefore, make sure you keep these conditions in mind before exploring your term insurance tax benefits.
2. Tax Benefits on Insurance Payout
One of the most essential roles of a life insurance policy is to provide a death benefit. The death benefit is a sum of money paid out to the policy holder’s nominees in case the policyholder passes away during the term of the policy. If the policyholder no longer wants to pay premiums or needs funding for retirement, the policy can be sold for cash through a life settlement.
In addition to the comprehensive financial security offered, you can also enjoy tax deductions on your term plan premium. Moreover, even the death benefits offered by these policies are exempt from taxation.
3. Tax Benefits on Death Payout
With a term plan, the amount your nominee receives in form of a death benefit is also exempt from taxes as per section 10(10D) of the Income Tax Act. Moreover, in case you choose a term plan with a return of premiums feature, even the refund amount is tax-free.
4. Tax Benefits Under Section 80D
While this section of the Income Tax Act is applicable majorly for health insurance policies and offers deductions under ranging conditions, you may find certain term plans that allow you to avail of tax benefits through it.
If you have chosen an additional rider related to your health such as a critical illness benefit, you can enjoy the deductions offered by section 80D. Again, there are some terms and conditions that you should be aware of:
- You can only avail of deductions for an amount less than Rs. 25000
- For senior citizens, the deduction limit is Rs. 50,000
- In case you purchase an additional policy for your parents, you can enjoy another deduction of Rs. 25000 as well
If you want to make the most of the tax-saving benefits under this section, you should consider covering yourself and your family with a term insurance policy.
5. Tax Benefits Under Section 10(10D)
According to this section, the payouts related to the policy such as the sum assured received on surrender or maturity or the death benefit are also exempt from taxes. To make sure this deduction is applicable, make sure you adhere to the following conditions:
- It’s applicable only if your premiums are less than 10% of the sum assured
- In case your payout exceeds Rs. 1,00,000, a TDS of 1% is applied
Now when you know about the various term insurance tax benefits, let’s take a look at some of the best term plans available in India that provide tax benefits.
Best Term Plans in India with Tax Benefits
1. ICICI Pru iProtect Smart Term Plan
The iProtect Smart is one of the top-selling term plans in India that offers adequate coverage at affordable rates. With this plan, you can enjoy cover for up to 99 years of age and optionally choose to stay covered against 34 critical illnesses.
2. Canara HSBC Oriental Bank Of Commerce – iSelect Star Term Plan
The iSelect Star Term Plan is a highly customizable term plan with loads of features to make your coverage more personalized. The plan also offers tax benefits and great flexibility in premium payment terms.
3. Max Life Smart Secure Plus Term Plan
The Smart Secure Plus plan by Max Life Insurance is a great way to protect your loved ones against any eventualities. The plan is available in two major variants – life cover and increasing life cover. You can also choose from multiple payout options with this plan.
Based on this article, it is clear that life insurance can benefit you in several ways. Not only will it provide financial security to your family if something happens to you, but it can help them avoid paying an unnecessary amount of taxes as well.