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Tax Benefits of Term Insurance: A Detailed Guide

Tax Benefits of Term Insurance: A Detailed Guide

Term insurance plans are modern-day necessities for every individual and household/family. Considering the sheer uncertainty of life, it is always best to build a financial safety net for your family in the event of any unfortunate and unforeseen mishap. This is where term insurance comes into the picture.

It is one of the basic and most important additions to any financial portfolio as a result. But that is not all that makes it such a value proposition; it also enables lucrative tax benefits that you should capitalize on. Here’s looking at the same below.

Term Insurance Plan Tax Benefits Under Section 80C

Term insurance plans offer policyholders attractive tax deductions under Section 80C. Here are some key details.

  • You can get deductions up to Rs. 1.5 lakh under Section 80C on your term insurance premium payments (bear in mind, this section offers deductions for various other investments like ELSS, PPF, ULIPs, and other expenditures).
  • To qualify for these deductions, your annual premium should not exceed 10% of your sum assured amount. If it is, the deduction will apply proportionately.
  • For policies issued prior to 31 March 2012, the deduction applies only when the annual premium does not exceed 20% of the sum assured.
  • The policyholder will not get tax benefits on premium payments in case of any voluntarily surrendered/terminated policy two years from inception (as per Section 80C (5)).

Additional Term Insurance Tax Benefits

Some additional tax benefits of term insurance plans include the following:

  • Section 80D-

This section traditionally offers tax deductions for health insurance premiums paid for yourself, your spouse, your children, and your parents, with varying deduction limits and conditions. It offers deductions of up to Rs. 25,000 on premiums paid for add-ons to your term plan, like critical illness coverage. Does this sound confusing?

In case you have a health-linked rider with your term plan, such as hospital care, surgical care, and so on, you can get tax benefits under this section as well. In case you have taken an insurance policy for your parents, then you can get an additional deduction of Rs. 25,000. In case your parents are senior citizens, it will increase to Rs. 50,000.

  • Section 10 (10D)-

Under this section, the sum assured that is received by your nominees upon your demise will be tax-free. Any bonuses received with this amount will also be exempted under this section. However, the premium has to be less than 10% of the sum assured, or the latter has to be at least 10 times the premium. Also, a TDS of 1% will be applicable in case this payout surpasses Rs. 1,00,000 and the PAN of the policyholder is available.


As can be seen, you can use a term insurance plan to leverage several tax benefits in the long run. This is the icing on the cake as far as these policies are concerned. They also keep you mentally relaxed since your family will be financially secure in your absence.

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