What is a term insurance plan?
Term insurance plans provide pure life cover for a specific time without a savings or profit component. You can opt for a larger life cover at a lower premium as compared to endowment policies. The nominee receives death benefits if the insured passes away within the policy term. In most plans, there are no maturity benefits.
Who can claim income tax benefit on term insurance?
Term life insurance benefits in terms of tax deduction can be availed by an individual for themself, their spouse, and their children.
Is there a tax benefit on term insurance premium?
Yes, there are tax benefits on the premiums paid as well as the amount received as Sum Assured. Under Section 80C, income tax benefit on term insurance is provided for premiums upto ₹1.5 lakhs per year. This can also include premium payment for your spouse and children.
What are the conditions for tax benefit on term insurance premium?
- If the yearly premium paid is higher than 20% of sum assured, tax deduction on term insurance premium can be availed upto 20% of sum assured.
- For a term insurance policy issued on or after 1st April 2012, premium upto 10% of sum assured can be tax-deductible.
- For a policy issued on or after 1st April 2012, premium upto 15% of sum assured can be tax-deductible if the insured suffers from an ailment listed under Section 80DDB or a disability which is listed under Section 80U of the Income Tax Act.
What are the term life insurance benefits on returns in terms of tax?
Apart from tax benefit on term insurance premium, you could even save tax on death benefit or maturity amount. Under Section 10 (10D), there is no upper limit for the death benefit received by beneficiaries. However, if the payable premium in any of your policy years exceeds 20% of the sum assured, the maturity amount becomes taxable. Generally, this is not bound to happen because sum assured is usually much higher than the premium.
What about the bonus received from the policy?
Bonus received from the policy is also eligible for income tax benefit on term insurance.
What are the exceptions under income tax benefit on term insurance?
- Any amount received by the taxpayer under Section 80DD(3)
- Any amount received via a through a Keyman Insurance Policy