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How life and health insurance help you save tax while securing your family’s future

With the tax season around the corner, you must be looking at ways to reduce your tax outgo. Well, you don’t have to look very far. Insurance helps you reduce your tax liability by offering deductions from your taxable income. Both life and health insurance policies give you tax benefits. Do you know how? Let’s find out –

Life insurance

In the case of life insurance, the premiums you pay and the benefits you receive are both tax-free under different sections of the Income Tax Act. Let’s check the life insurance tax benefits –

For premiums paid -

Section 80C – Premiums paid for a life insurance policy, whether it is traditional or ULIP qualifies for tax exemption under this section. The maximum allowable deduction is ₹1.5 lakhs and to claim this deduction your premiums should not be more than 10% of your sum assured. So, if your policy’s sum assured is ₹10 lakhs, the premium should be up to ₹1 lakh to be eligible for 80C deduction from your taxable income.

Section 80CCC – This section deals specifically with the premium paid for a pension or annuity plan. If you buy a pension plan from a life insurance company, the premium paid is exempted under this section. The maximum limit is ₹1.5 lakhs with effect from Assessment Year 2016-17, and it includes the limit under Section 80C. Thus, under Sections of 80C and 80CCC combined, the maximum available deduction is limited to ₹1.5 lakhs.


For benefits received

Section 10 (10D) – Under this section, any benefit received from a life insurance plan is tax-free in the receiver’s hands. There is no maximum limit under this section. Any amount of money received through a life insurance policy is applicable for tax-exemption. The benefits can be maturity benefit, death benefit or surrender benefit. However, in case of surrender benefit, the following points should be remembered for claiming tax-exemption -

For single premium traditional life insurance plans (except pension plans), the surrender value is tax-free only if you surrender the policy after the completion of 3 policy years.

If you have a regular premium policy, premium payment for three years is compulsory if you want to claim tax-exemption on the policy’s surrender value.

For ULIPs, there is a lock-in period of 5 years. Surrendering the plan only after the lock-in period makes the surrender value tax-free.

The surrender value of pension plans is not tax-free. You have to pay income tax whenever you surrender a pension plan.

Condition:10(10D) benefit will not be available in case the premium exceeds 10%.

Section 10(10A) – This section is relevant for pension plans, both ULIPs and traditional. Under pension plans, you can withdraw (also called commute) 1/3rd of the accumulated corpus on vesting. This commuted pension is tax-free under Section 10(10A). The rest of the corpus is paid as annuity pay-out and annuities are always taxable.


Health insurance

Health insurance policies also give you tax-exemptions. The premiums paid for a health plan gives you a deduction under Section 80D. There is, however, a limit to the amount of deduction which you can claim. Let’s understand health insurance tax benefits –

If you buy a policy for yourself and your spouse and children

You can get a maximum deduction of ₹25,000

If you are a senior citizen

The deduction limit increases to ₹50,000

If you buy a policy for your parents

You can get a maximum deduction of ₹25,000

If your parents are senior citizens

The deduction limit increases to ₹50,000

If you buy a policy for yourself, spouse and children and another policy for your parents

You get two deductions:

  1. Up to ₹25,000 for your policy and
  2. Up to ₹25,000 for your parents’ policy

If your parents are senior citizens and you also buy a plan for them

You get two deductions:

  1. Up to ₹25,000 for your policy and
  2. Up to ₹50,000 for your parents’ policy

If both you and your parents are senior citizens and you buy two policies, one covering your family and another for your parents

You get two deductions:

  1. Up to ₹50,000 for your policy and
  2. Up to ₹50,000 for your parents’ policy



Thus, you get a maximum deduction of ₹1,00, 000 on your health insurance premiums if you buy a separate policy for your parents and both you and they are senior citizens. Hence, a life and a health insurance plan can help lower your taxable income by offering deductions under particular income tax slabs. If you want to lower your tax-outgo, investing in insurance is probably the right thing to do.

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