Term Insurance Tax Benefit Under Section 80C & 80D

One of the concerns that every earning individual has is their family’s financial stability. Many wonder what might happen to their dependents in case they pass away untimely.
Thus, they look for an option to secure their family’s financial future. One such option that can ensure a family’s financial security is term insurance.Term insurance plans are one of the most popular types of life insurance. A term insurance policy offers life cover to the policyholder for a specific tenure.In case of the policyholder’s death during the tenure, his/her nominee will receive the death benefit. This amount can be used to repay loans, meet regular expenses, and pay for future goals. Apart from this benefit, term insurance can also provide the insured person with tax benefits. Also Read: What is Term Insurance?

The most important benefit of a term insurance plan is that it offers the death benefit. It can ensure the policyholder’s family stays financially stable in case of an unfortunate event. Tax benefits are one of the other term insurance benefits . Let’s take a look at term insurance tax benefits -

Tax Benefit Under Section 80C

Section 80C deductions are the most common tax-saving option. Under Section 80C, the deduction limit for all tax-saving options put together is Rs. 1.5 Lakh. Some of the most popular tax-saving options are ULIPs, repayment of home loans, etc. Term insurance also falls under Section 80C.One of the life insurance tax benefits is that the premiums paid to purchase term insurance can be claimed as a tax deduction under Section 80C. However, to be eligible to claim this deduction, you must meet a few requirements-

• The annual premium shouldn’t be more than 10% of the sum assured. The deductions will be applied in case the premium is more than 10%.
• In case a policy is purchased before 31stMarch 2012, then the annual premium shouldn’t exceed 20% of the sum assured.
• Under Section 80C(5), if a policy is voluntarily surrendered or terminated within 2 years, then the policyholder will not receive any tax benefit under Section 80C.

Tax Benefit Under Section 10(10D)

Another term plan tax benefit is that the death benefit amount received in case of the policyholder’s death during the tenure is exempted from tax under Section 10(10D). The entire amount is tax-free.Furthermore, there are a few plans that return the premiums if the insured person survives the term. This amount is also tax-free under Section 10(10D). Under Section 10(10D), the amount received on surrender of a plan or maturity is also tax-free. The amount is eligible for a tax exemption if it meets the below requirements-

• The tax benefit can be availed if the sum assured is at least 10 times the premium or the premium is below 10% of the sum assured.
• A TDS of 1% is applied if the payout is more than Rs. 1 Lakh and the insurer has the policyholder’s PAN.

But there are a few situations when the death benefit isn’t eligible for the tax exemption-

• Any benefit received under sub-section (3) of Section 80DDA or Section 80 DD(3)
• Any benefit received under a Keyman insurance plan

Tax Benefit Under Section 80D

Section 80D is reserved for health insurance policies. But term life insurance tax benefits can also be claimed under Section 80D. If you have opted for a healthcare rider, such as critical illness add-on, surgical care, etc., with your term plan, then you can avail tax deduction under Section 80D.But to be eligible to claim this deduction, you must meet a few requirements-

• The tax deduction can be claimed if the amount isn’t above Rs. 25,000.
• You can avail an additional tax deduction of Rs. 25,000 if you have purchased insurance for your parents. However, if your parents are senior citizens, then the deduction limit is Rs. 50,000.

Furthermore, beneficiaries must keep in mind that there are situations when they might be taxed. For instance, the sum assured amount can be taxed if the policyholder doesn’t opt for a lump sum payout.In such a situation, the insurer holds the amount until the payout is made. The insurer might pay interest on this amount. This interest amount can be taxed.

Most earning individuals have dependents who rely on them financially. In case of an earning individual’s untimely demise, his/her dependents might find themselves facing a huge financial burden.
But a term insurance plan can protect against financial stress. Therefore, people can secure their family’s financial future by purchasing term insurance.

A person’s age is a crucial factor considered by insurers when calculating the premium amount. A young individual’s premium can be lower compared to an older individual’s premium.
Most insurers consider older individuals to be more susceptible to illnesses. Therefore, they are charged a higher premium. Hence, it’s recommended to purchase term insurance as early as possible.

While there are various term plans available, choosing one without any research is unwise. There are various factors that you should consider, such as your liabilities, the correct sum assured amount, the right add-ons, etc. After that, you must compare different plans and check their premiums. This will help you select the right term plan.