Term Insurance Comes Under 80C

By what means do premium payments on your term insurances contribute to your tax savings? The answer is, yes! Term insurance is included under Section 80C of the Income Tax Act, which implies that you are allowed to deduct the premium payments you make.

What Does Section 80C Cover for Term Insurance?

Section 80C allows you to take a taxable deduction for life insurance premiums paid for any one of the three:- yourself, your spouse, or your children in a financial year. The total amount that can be deducted under 80C along with other investments such as PPF or ELSS is ₹1.5 lacs per year.

One significant requirement is that if the policy was issued after April 1, 2012, the premium must not be more than 10% of the sum assured. For policies before that date, the maximum is 20%.

 Other Related Tax Benefits

Section 80D: If you have health-related riders like critical illness or accidental death benefits, the premium paid for those riders qualifies for deduction under Section 80D, up to ₹25,000 (₹50,000 for senior citizens).

Section 10(10D): The money your nominee gets as a death benefit is free from tax as per Section 10(10D).

 Quick Example

For example, Raj pays annually ₹40,000 towards the premium of his term plan that has a sum assured of ₹10 lakhs. Under Section 80C, he claims a deduction of ₹40,000. Besides that, he has a critical illness rider with a premium of ₹5,000. In such a case, the rider premium is deductible under Section 80D. The nominee, in case of Raj's death during the insurance period, will get the benefit free of tax under 10(10D).

Bullet List Summary

Term insurance annual premiums are allowed as a deduction under 80C (limit ₹ 1.5 lakhs).
Rider premiums are eligible for deductions under 80D (up to ₹ 25,000).
The benefit amount paid out on death is free from taxation under 10 (10D).
Premium limits: after 2012 policies, a maximum of 10% of the sum assured.
Indemnity is available for policies on yourself, spouse, and children.