Save Tax with Term Insurance. 

Must Read

  • Introduction
  • What is Term Insurance?
  • Tax Benefits and Term Insurance
  • Tax Benefits on the Life Insurance Payout
  • Tax Benefits on the Policy Returns
  • Tax Benefits Under Section 80C of the Income Tax Act
  • Tax Benefits Under Section 80D of the Income Tax Act
  • Tax Exemptions Under Section 10(10D) of the Income Tax Act
  • Conclusion

As we all know, there are a plethora of life insurance plans available in the market. Endowment plans, life insurance policies, annuity plans, and money plans are among the many available insurance policies. All such insurance policies have various funding goals, which may differ from person to person.

What is Term Insurance?

Term insurance is a plan that provides comprehensive coverage for a certain period of time as long as the policyholder pays the requisite payments. In the event of an untimely death, the term insurance policy offers financial security to dependents who are direct beneficiaries of the person insured. This plan not only offers financial security for the policyholder’s family, but it also gives tax breaks to the insured. The premiums paid for a term insurance plan are tax deductible under section 80D.

While whole life and term insurance rates are often fixed from the start, these other options frequently have variable pricing depending on the performance of your cash-value account and the type of protection you select. This might result in large savings or unanticipated expenditures. As is customary, discussing your personal requirements with an insurance representative is a good place to start.

Understanding that a term life insurance policy does not provide a maturity benefit is vital. This implies that no benefits are provided if you cancel the insurance before the end of the term. One such plan provides protection solely in the tragic event of death and is hence referred to as pure life insurance. The best part is that term plans have cheap premiums charged by insurance companies. In fact, the rates for this sort of insurance are the lowest of any type of life insurance plan. This is because the full sum is utilized to cover risks and is not used for additional investment.

Tax Benefits and Term Insurance

In the case of tax and savings planning, many people choose to buy life insurance plans. The premiums you pay can be deducted from your taxable income, letting you save significantly on taxes. Furthermore, your insurance policy’s sum assured and maturity benefits are tax-free. 

Term insurance is the most common tax-saving insurance product right now. These insurance provide comprehensive coverage at a comparatively lower cost than other types. If the policyholder dies when the plan is still in effect, the beneficiary will be paid the sum insured amount. Today’s term policies are a little more refined. Some plans provide benefits upon the diagnosis of a serious disease or if an accident renders the insured forever handicapped.

Tax Benefits on the Life Insurance Payout

Life insurance policies, such as term plans, give the policyholder’s beneficiary financial security. The life insurance plan payment serves as a financial backup plan for the insured’s family members. If the policyholder is injured or dies while the insurance is in effect, the beneficiary must make a claim. They get the reimbursement after the claim is submitted and authorized. The best thing is that the dividend is not subject to taxation.

Tax Benefits on the Policy Returns

Earlier, there were no maturity advantages with term plans. The policyholder would not get a payout if they outlived the insurance term. That has altered over time. Several term plans now offer a return of premium (RoP) payout as well as minor maturity incentives. These returns are available if you outlive your term plan policy. These maturity advantages, like the life insurance payout, are tax-free. The maturity distributions are completely tax-free under Section 10(10D) of the Income Tax Act of 1961.

Tax Benefits Under Section 80C 

In the case of tax preparation, most people go to Section 80C of the Income Tax Act for deductions and exclusions. People can claim deductions for premiums spent on insurance plans as well as other investment tools up to a limit of Rs. 1,50,000 annually under this clause. Aside from life insurance, taxpayers can benefit from money put into their provident fund, house loan repayment, children’s education costs, and other expenses over time. To qualify for term insurance tax advantages under this provision, you must meet the following requirements:

The yearly premium payment must be less than 10% of the entire sum assured. In the event that the premium exceeds 10%, the deduction is applied proportionally. The premium amount for plans issued before 2012 should be less than 20% of the assured sum. Your insurance must be in effect for at least two years. You will not be able to claim tax under Section 80C of the Income Tax Act if you terminate the insurance within 2 years.

Tax Benefits Under Section 80D 

Section 80D primarily applies to premium payments paid for the maintenance of health insurance coverage. Because term plans now include some health coverage, you can also take advantage of term plan tax breaks under this section. Section 80D of the Income Tax Act enables you to deduct an extra INR 25,000 for premium payments made for the preservation of your term plan. You can get an extra INR 25,000 if you pay the premium payments on your parents’ term policy. If your parents are elderly citizens, the deduction figure increases to INR 50,000.

Tax Exemptions Under Section 10(10D) of the Income Tax Act

Under Section 10(10D) of the Income Tax Act, all payments and bonuses received by you or your beneficiaries are tax-free. However, there are several requirements that must be met in order for this deduction to be valid. To begin, the premium payments made must be less than 10% of the sum assured. It is vital to remember that when the sum exceeds INR 100,000, the insurance deducts 1% of the payout as TDS.


Term insurance is the most convenient and cost-effective solution to provide optimal financial security for your dependents in your absence. It not only provides substantial life insurance, but it also provides favorable tax breaks. Yet, before purchasing term insurance plans in India, make sure to review the current tax regulations and determine whether they apply to your insurance plan.