Why Do You Need Term Insurance In This Tax Plan Season?

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Why Do You Need Term Insurance In This Tax Plan Season?
Why Do You Need Term Insurance In This Tax Plan Season?

New Delhi : Term Insurance assists you in saving taxes! Before we get into how term plan tax breaks might be obtained, let's first define what a term plan is. A term insurance policy is basically a type of life insurance that offers protection to an insured for the time period, or 'term,' that the policyholder specifies. Term insurance rates are significantly lower than those of typical life insurance contracts. They seem to be more available and provide the policyholder with considerably more freedom. 

What is Term Insurance?

Term insurance is a kind of life insurance wherein the policyholder and the insurance provider agree that the insurance company will cover the insured's life in exchange for a token sum known as the "Premium" and for a time duration known as the term. Generally, term insurance plans pay out money to the nominee in the event of the policyholder's demise. However, a few term insurance plans pay a maturity benefit to the policyholder if they survive until the conclusion of the policy term.

Key Features Of Term Insurance Policy

  • Death benefits
  • Maturity benefits
  • Tax benefits
  • Rider/Add-on covers
  • Protection against various liabilities 
  • Sum Assured
  • Premium Payment Frequency
  • Claim Assistance

Why Should You Buy Term Insurance Policy?

High life cover at affordable premium

Life is unpredictable, and we must have a contingency plan to guarantee financial stability for our family. And, in the event of the policyholder’s sudden death, the family may experience financial difficulties as a result of the loss of the family's earning member. A term policy pays for the children's education future troubles, repays existing mortgages, and offers revenue to the policyholder's family members in the event of the insured's unexpected death. Term life insurance policies offer hight 

Premium Payment and Tax Benefits

Tax breaks are available for premiums paid. The tax breaks are available under Section 80C of the Income Tax Act of 1961, which allows for deductions of up to Rs. 1.5 lakhs in a fiscal year. This sum is the total of all deductions from investments in the many other sectors indicated in this act.

Section 80C is seen in combination with Sections 80CCC and 80CCD, implying that the tax deductions available under all 3 sections should not exceed Rs.1.5 lakhs.

Income tax breaks for term insurance within this section are subject to specific limits and conditions that you must be aware of before receiving any kind of tax benefit.

For any policy issued on or after April 1, 2012, the total amount of the premium charged through the plan must be 10% or less of the sum assured in order to qualify for tax benefits. In addition, for any policy issued prior to March 31, 2012, the percentage drops to 20% or less. The HUF (Hindu Undivided Family) can gain from this. Furthermore, if the premium is up to 15% of the sum assured, you will be eligible to receive the tax break in the event of a severe handicap.

Tax-Free Payouts

The sum assured given to the beneficiary or nominee is tax-free, according to section 10 (10D) of the Income Tax Act of 1961. As a result, in order to receive the maximum 80D tax benefit, you must receive the sum assured without paying any taxes. However, one provision stipulates that the sum assured must be ten times the yearly premium paid to be tax-free.

Riders and Tax Deductions

Section 80D of the act also allows for deductions. However, it is thought that this is often limited to health insurance policies. Term insurance riders are advantageous under the 80D tax advantages. To claim income tax breaks for term insurance plans with section 80D, a health-related rider, such as the disability insurance rider, critical illness, surgical care, and hospital care can be added.

Term insurance thus provides additional benefits, in addition to the main intent, that it guarantees to fulfill. With correct tax benefit knowledge and education, you and your family members may reap the full benefits of term insurance and live a pressure-free and financially secure life.

Tax benefits of term insurance under Section 80D

Section 80 D should generally only contain tax advantages for health insurance policies and not life insurance plans. Because term plans are life insurance policies, they are not normally covered by Section 80D.

However, if you acquire a health-related rider, like the critical illness rider, your term insurance may qualify for a discount under this Section in some situations. The following are the rules:

  • if you are now below the age of 60, the total tax-deductible for a plan for yourself, your wife, and your kids cannot exceed Rs. 25,000.
  • You can claim an extra Rs. 25,000 for a plan purchased for your mom and dad (if they are below 60).
  • If the policy holder is a senior citizen, the overall tax break can be increased to a maximum of Rs. 50,000.

Term insurance tax benefit under Section 10(10D)?

Term insurance also provides tax advantages to your nominee. An online term plan is intended to protect your loved ones while you are away, and tax benefits improve this protection by guaranteeing that your loved ones receive the full amount owed to them without extra tax breaks.

Section 10(10D) allows the beneficiary of a term insurance policy to receive a tax-free payout if the following conditions are met:

  • The dependent can claim tax exemption on the entire sum assured amount if the premium of the term plan is less than 10% of the total sum assured.
  • The nominee can only claim tax exemption of the entire sum assured amount if the payout is at least ten times the premium payment.
  • In cases where the insurance benefit is higher than ₹1,00,000, and the insurance provider has the policyholder's PAN, the insurer can levy a 1% Tax Deducted at Source (TDS) to the insurance payout.


If you haven't still invested in a term insurance plan, tax exemption is one more reason why you should! The multidimensional features of term plans make them a much-needed financial tool in almost every situation. So, go ahead and buy a term insurance plan as soon as you can. But make sure to pick a plan that offers cost-effective premiums, a high sum assured, and the option to add riders for overall protection.

Published : 2022-02-04 11:21:50
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