Term insurance policy protects your family's well-being during the policy term. In an unforeseen situation, the term insurance policy will offer a payout for your beneficiaries. Such financial assistance can help your family overcome financial hurdles and maintain their quality of life. While this is a promise for the future, a term insurance policy also offers relief in the present in the form of tax savings. So, it can also be a strategic investment decision.
Let's understand the tax implications of term insurance so that you can make the right choice when buying term insurance.
Are Tax Benefits Available for Term Insurance?You must pay attention to the tax benefits of term insurance to claim tax relief while paying the insurance premium. You should also know whether there will be a tax burden on your beneficiaries when they receive the policy payout.
Term insurance offers tax benefits both during the policy payment period and after the payout is made. Explore the available tax relief in the term insurance income tax section. According to the Income Tax Act, multiple tax benefits are available:
- Under Section 80C for premiums paid on term life insurance
- Under Section 10 (10D) for death benefits
- Under Section 80D for premiums paid on riders
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When you opt for the old tax regime, you can claim deductions under Section 80C. As per this section, you can avail of deductions of up to Rs. 1.5 lakhs on premiums you pay for term insurance policies. In this case, the policy premium must be less than 10% of the sum assured. For policies purchased before April 1, 2012, this limit is 20% of the sum assured.
Term Insurance Tax Benefits Under Section 10(10D)
The primary reason for purchasing term insurance is to ease the financial burden of the dependents when the policyholder passes away suddenly during the policy period. To ensure this, the Income Tax Act offers tax exemption death benefits. For this case, the premium paid for the policy should not be more than 10% of the sum assured (for policies purchased after April 1, 2012)
Term Insurance Tax Benefits Under Section 80D
Similar to health insurance policies, specific life insurance policies, such as the critical illness or surgical care rider, offer tax relief for premiums paid on riders. For each financial year, the maximum allowable deduction is Rs. 25,000 for term insurance policies for you or your spouse. If the policyholder is a senior citizen, the tax deductions can be up to Rs. 50,000. This means additional tax benefits, making term insurance a smart financial planning option.
Is Term Insurance Ideal for Tax Savings?The term insurance plan offers tax benefits but is more than an instrument for tax savings. It is a protection plan that ensures the financial well-being of your dependents. The policy payout can help them take care of debt, manage their daily expenditure, and support them to chase their life ambitions.
Term insurance provides beneficiaries with comprehensive coverage. It is also the most straightforward and affordable life insurance accessible to individuals across different income brackets.
ConclusionTerm insurance policy offers tax benefits and financial security to your dependents. However, when choosing term insurance, you must consider key factors beyond tax benefits. Evaluate your family’s long-term needs, ensuring they can maintain their lifestyle, pursue their ambitions, and continue living without a financial burden. As term insurance plans with a large payout, such as Rs. 1 crore, are now more affordable, choose the right plan based on your needs today.
