Vinay is very careful when it is about buying an insurance product. Several times his friends suggested him to purchase a term insurance policy since he has his wife and children dependent on him. However, every time Vinay rejected the idea since he thought it was a mere waste of money. In the second wave of COVID-19 in India, he received news of one of his uncles’ demise. His uncle left his wife and son behind. However, his aunt and cousin do not need to worry about the loan since his uncle had bought a term insurance policy. Vinay also found out that his uncle also got term insurance tax benefits when he was alive. This has finally convinced Vinay to buy a term insurance plan.
The majority of us are like Vinay who thinks purchasing a term insurance policy will not be beneficial anyway. Well, even if you survive through the policy term, you will be able to avail of the term plan tax benefit. Let us discuss to know more about this.
Term Insurance Tax Benefits
As we talk about term insurance premium tax benefits, there is not just one benefit but many of them. This will help you to save money that can be used for the financial future of your family. Are you wondering about term insurance comes under which section? Let us discuss this too.
Term Insurance Tax Benefits Under 80C
Under Section 80C of the Income Tax Act, 1961, the Indian taxpayers avail of the basic term insurance tax benefits. As a matter of fact, this section is one of the most popular tax-saving tools among the majority of people. You can actually enjoy term insurance tax benefits of up to INR 1.5 Lakh for the premiums that you pay for continuing the term insurance plan. You should be aware of the crucial aspect about the upper limit of the tax deductions that comes under this section also include tax benefits on various types of investments such as tax-saving Fixed Deposits, Public Provident Fund (PPF), and various other tax-saving options. To enjoy the maximum tax benefits on life insurance, you have to invest in a substantial life cover, which can be helpful for your family members in the longer run.
Term Insurance Tax Benefits Under 80D
Under Section 80D, policyholders can enjoy tax deductions on the premiums that they pay for their health insurance policies. However, indirectly, one can also enjoy term insurance tax benefits under this section.
If you are planning to avail of term insurance tax benefit under the 80D Section, you would need to have a health-related rider which can be a Surgical Care Cover, Critical Illness Cover, or something similar to these two. To put in other words, you can get the maximum tax benefit out of your term insurance premiums by choosing these riders along with having a health insurance cover.
Term Insurance Tax Benefits Under 10 (10D)
Apart from availing of the tax benefits, you and your family will also be able to save money through tax exemptions. And this is covered under Section 10(10D).
To put it simply, the death benefit that is received under a term insurance policy is tax exempted. However, this is subject to several conditions that are provided there. Usually, the term insurance tax benefits do not come with an upper limit. This means the entire amount that will be received by your family under the term insurance plan is exempted from taxes.
While you are a term insurance policyholder and looking for ways to enjoy tax benefits, you must be aware of the fact that term insurance tax benefits under Section 10(10D) are subject to particular conditions. It means that the death benefits under any term insurance plan are non-taxable if the premium you pay during the policy term does not go beyond 20% of the pre-determined sum assured.
Tax Benefits on Term Insurance Riders
Insurance companies offer several types of term insurance riders so that the policyholders can get additional coverage. However, the benefits that come with these rides are not limited to strengthening a term plan beyond the main feature.
Availing of the additional term insurance tax benefits depends on the rider that you choose with your term insurance policy as well as related conditions. Mentioned herein below are some of the ways in which term insurance policy riders can help you to avail of additional term life insurance tax benefits.
- When Critical Illness rider is added to a term insurance policy, it will make you eligible for tax deductions, and under Section 80D.
- While purchasing a term insurance policy, if you choose a rider like Returns of Premium, it helps in increasing the premium by helping you to save more money under Section 80C.
While you are buying a term insurance policy, you must have a thorough knowledge of all these sections under Income Tax Act.