Term plans are the purest form of the life insurance. They’re great for anyone looking to get comprehensive coverage for their family’s financial protection. In the event of the insurance holder’s death, the nominee is offered the sum assured of the policy, referred to as a death benefit.
Another key feature of a term insurance plan is the tax benefits under the various sections of the Income Tax Act. A term insurance plan can be a good choice if you are looking for affordable life cover for your loved ones along with the benefit of tax deductions and exemptions.
Benefits Under a Term Life Insurance Plan
A term plan can be a valuable tax-saving instrument. The best term insurance plan makes you eligible for multiple tax benefits available under the policy.
Some term insurance plans also offer survival benefits. These are referred to as term plans with return premiums. This means that if you – the policyholder, outlive the policy term. The term insurance plan will offer to return all premiums paid during the policy term.
Term Insurance Tax Benefits Available In India
Here are some term insurance benefits you get if you own a term insurance plan:
- Benefits Under Section 80C
This section is often the first option that comes to mind when people opt for tax deductions. It’s also the most commonly used tax deduction. This benefit is applicable when you exceed a certain percentage of the sum when paying your premiums.
With a Tata AIA term policy, you can claim tax deductions of up to ₹1.5 Lakhs on paid premiums, under this section.
Note that the upper limits available under this section include tax benefits on investments in PPF (Public Provident Fund), tax-saving Fixed Deposits, and several other tax-saving instruments.
- Benefits Under Section 80D
Section 80D of the Income Tax Act allows for deductions on your health insurance premiums. However, this deduction can also be claimed on health riders added to your term plan. Hence, if you add a critical illness cover, a hospitalisation rider or any similar riders to your term insurance plan, you can claim the deductions on the rider premiums.
- Benefits Under Section 10(10D)
Section 10(10D) of the Income Tax Act covers the tax exemptions on the death benefits of the term insurance policy. The entire amount under the death benefit of your term plan, to be paid out to the nominee, is fully tax-exempt under this section.
If you opt for a term plan with a return of premium, the maturity benefit, which is the total of all the paid policy premiums, will also be exempt from tax under Section 10(10D). However, the exemption on the maturity benefit under this section is subject to policy terms and conditions.
Term insurance plans are an excellent way to save money on taxes. They’re more affordable than other forms of life insurance and are easier to buy when purchased online. A lot of people today opt for term plans with a return premium so that they can enjoy term insurance coverage and also receive a maturity benefit. And with each year’s tax deductions on premiums, term life insurances make for an effective tax-saving instrument.