Term Insurance Tax Benefit
What is Term Insurance?
Term insurance is a type of life insurance policy that provides protection to the policyholder for a specific period as per the chosen tenure of the policy. In case of the demise of the policyholder, the nominees will get the death benefit as prescribed in the policy. Term insurance is considered quite affordable plans because they do not offer any maturity benefits.
Tax Benefits in Term Insurance
Tax benefit under Section 80C
Under this section, an investor can claim a tax deduction of up to Rs.1.5 lakh in a financial year. There are many different financial instruments that are eligible for tax deduction under this section like PPF, ELSS, Tax saving FD, and many more.
The premium paid for term insurance is also eligible for deductions under Section 80C of the Income Tax Act,1961.
The policyholder can only claim the deduction if the annual premium is less than 10% of the sum assured. If the premium exceeds 10% of the sum assured then the deduction will be applied proportionately.
The policies which were issued before the 31st march 2012, can claim the deduction of upto 20% of the sum assured.
Tax benefit under Section 80D
Earlier deduction under Section 80D was given only for the premium paid for the health insurance. But, after the recent rule changes, if the term insurance has a health insurance benefit such as critical illness, surgical care, etc, then also the premium will be eligible for the tax deduction.
There are different conditions to claim tax deduction under section 80D like:
- The deduction can be claimed for the premium paid for yourself, spouse, or children for up to Rs.25,000 in a financial year.
- The additional deduction can be claimed for Rs.25,000 if the policy is for your parents,
- Also, if the parents are above the age of 60 years, an additional deduction of Rs.50,000 can be claimed.
Tax benefits under Section 10(10D)
Section 10(10D) gives the deduction for any amount received as the maturity or death sum assured. The amount received from the policy is completely tax-free. Also, any bonus received with the sum assured is exempted from the tax.