Term Insurance Tax Benefits

Table of Content

1. What is Term Insurance and How Can It Help You Save on Taxes?

2. How to calculate my term insurance premium?

3. Tax Benefits of Term Insurance Under Sections 80C, 80D and 10(10D)

4. How to qualify for term insurance tax benefits under Section 10(10D)?

5. Who Can Claim Tax Benefits Under Section 80D?

6. What Payments Can Be Claimed for Tax Deductions Under Section 80D?

7. What Is Not Covered Under Section 80D of the Income Tax Act?

8. Steps to Claim Tax Benefits for Term Insurance

9. Avoid Common Mistakes When Claiming Term Insurance Tax Benefits

10. How Tax Benefits of Term Insurance Differ Under the Old and New Tax Regimes

11. Conclusion

What is Term Insurance and How Can It Help You Save on Taxes?

Term insurance is a pure life insurance product that provides financial protection for a fixed policy term. Term life insurance tax benefits make it a smart way to protect your family while saving on taxes. The premiums you pay and the payouts your family receives can qualify for income tax benefits. This helps you combine life cover with tax efficiency in your financial planning.

According to The Business Standard, the total collection of premiums from private life insurance companies was ₹1.71 trillion in FY25. The premiums paid for a term policy are eligible for tax deductions under Section 80C, subject to applicable limits upto ₹1.5 lakh in a financial year, which is one of the key tax benefits of term insurance.

Individuals and Hindu Undivided Families (HUFs) can claim this benefit for policies taken for self, spouse, or children. This makes it suitable for most families planning their taxes. The death benefit paid to nominees is tax-exempt under Section 10(10D), under the Income Tax Act, 1961.

For example, if your policy includes health or critical illness riders, their premiums may qualify for additional deductions under Section 80D, within standard limits for individuals and higher limits for senior citizens.

Tax Benefits of Term Insurance Under Sections 80C, 80D and 10(10D)

Investing in term insurance keeps your family financially safe in your absence and helps minimise tax liability. The tax saving options under term plans are:

Term Insurance Tax Benefits Under Section 80C

• Term life insurance tax benefits under Section 80C allow you to claim a tax deduction on premiums paid for term insurance only if you opt for the old tax regime. This makes term insurance a useful way to combine life cover with tax savings.

• The deduction is available within the overall annual limit of ₹1.5 lakh in a financial year prescribed under Section 80C, which is also the cap for the term plan tax benefit.

• Individuals and Hindu Undivided Families (HUFs) can claim this deduction for policies taken for self, spouse, children, or HUF members.

• For policies purchased before 1 April 2012, the premium deduction would be limited to 20% of the sum assured. While, for policies purchased on or after 1 April 2012, the premium deduction would be limited to10% of the sum assured.

• A higher limit of 15% of the sum assured applies for policies covering persons with disabilities (Section 80U) or specified illnesses (Section 80DDB).

• The ₹1.5 lakh limit is shared with other eligible investments such as PPF, ELSS, NPS, and tuition fees covering everything combined under Section 80CCE of the Income Tax Act, 1961.

• The policy must be continued for at least two years; early termination leads to the reversal of previously claimed tax benefits.

How To Qualify For Term Insurance Tax Benefits Under Section 80C

• Term insurance deduction in income tax under Section 80C is available only under the old tax regime and cannot be claimed if you opt for the new tax regime.

• The term insurance policy must be active and in force during the financial year in which you are claiming the deduction. Lapsed or discontinued policies do not qualify.

• Individuals and Hindu Undivided Families (HUFs) can claim the deduction for policies taken for self, spouse, children, or HUF members, as applicable.

• The eligible deduction depends on the premium-to-sum assured ratio, which varies based on the policy purchase date as per Section 80C rules.

• You must continue the policy for a minimum of 2 years. If you surrender or discontinue it earlier, the tax authorities will reverse any previously claimed tax benefits.

• The government caps the maximum deduction at ₹1.5 lakh per year, shared across all eligible investments under Section 80C.

Term Insurance Tax Benefits Under Section 80D

The term insurance tax benefit of Section 80D is available only under the old tax regime and does not apply if you choose the new tax regime. Here are the other tax benefits arising from term insurance:

• Section 80D benefits apply only to health-related riders attached to a term insurance policy and not to the base life cover premium.

• Premiums paid for riders such as critical illness, surgical care, or other health riders qualify for deductions under Section 80D of the Income Tax Act, 1961, provided they relate to health protection or medical risk coverage and the payment is made through any mode other than cash (except in the case of preventive health check-ups)..Deduction limits vary for self, spouse, and dependent children, and the system provides separate limits for premiums paid for parents, as specified under Section 80D(2), namely

  - Up to ₹25,000 for insurance premium paid for self, spouse, and dependent children.

  - An additional ₹25,000 for insurance premium paid for parents.

  - These limits apply to the aggregate amount of health insurance premium and preventive health check-up expenses, subject to the limits prescribed.

• The Act provides higher deduction limits for senior citizens, meaning you can claim more if the insured person (self or parents) is aged 60 years or above, in which case the deduction limit increases to -

  - Up to ₹50,000 where self, spouse, or parents qualify as senior citizens under Section 80D(3).

  - Accordingly, the maximum deduction available under Section 80D may extend up to ₹1,00,000 in a financial year where both the taxpayer and parents are senior citizens.

• Deductions under Section 80D are over and above the ₹1.5 lakh limit of Section 80C, helping you maximise overall tax savings without overlap.

• Only the actual premiums paid during the financial year are eligible for deduction, as per the provisions of Section 80D, and the deduction is allowed only on a payment basis, irrespective of the policy period.

• Section 80D provides extra tax relief for health-related protection without overlapping with life cover deductions.

Here is a table showing the term insurance riders deductions:

How To Qualify For Term Insurance Tax Benefits Under Section 80D?

Term life insurance tax benefits under Section 80D are available only if your term insurance policy includes eligible health-related riders, such as critical illness or similar medical riders. Here are more details on how to qualify for the tax benefits of term insurance under Section 80D:

• Tax deductions under Section 80D for health-related riders apply only under the old tax regime and are not available under the new tax regime.

• Only the rider premium component qualifies for deduction; the base term insurance premium is not eligible under Section 80D.

• Individuals can claim this deduction for premiums paid for themselves, spouse, dependent children, or parents, as applicable under the Income Tax Act.

• The taxpayer may deduct only premiums actually paid during the financial year, regardless of when the policy was issued.

• The age of the insured impacts the deduction limits, with higher limits for senior citizens, as defined under the Act.

Term Insurance Tax Benefits Under Section 10(10D)

Term insurance tax benefits under Section 10(10D) ensure that death benefits received from a term insurance policy are exempt from income tax, subject to the prescribed conditions of the Income Tax Act.

Here are the other term insurance tax benefits under Section 10(10D):

• Tax-Free Benefit for Nominees: The tax exemption applies to the nominee or legal beneficiary, so the payout does not get added to their taxable income in the year of receipt. This is a key part of the term insurance tax exemption.

• Premium-to-Sum Assured Compliance: The entire lump-sum death benefit is exempt irrespective of the premium-to-sum assured limits specified under the Act. In other words, these limits are not applicable in case of death payouts.

• Impact of Policy Issue Date: For policies issued before 1 April 2012, a higher premium-to-sum assured ratio (upto 20%)was allowed; for policies issued on or after 1 April 2012, stricter limits apply wherein the premium payable in any year should not exceed 10% of the actual capital sum assured for the maturity proceeds to qualify for exemption under Section 10(10D).There is also premium thresholds for claiming exemption for ULIP policies issued on or after 1^stFebruary 2021 and for Non-ULIP policies issued w.e.f. 1^st April 2023.

• Policy Validity Requirement: The exemption applies only if the policy is valid and not terminated prematurely due to non-compliance with policy conditions.

Note: Section 10(10D) deals with tax exemption on payouts, unlike Sections 80C and 80D, which apply to premium deductions during the policy term.

How to qualify for term insurance tax benefits under Section 10(10D)?

Term life insurance tax benefits under Section 10(10D) generally exempt death benefit payouts received by the nominee or beneficiary from income tax, provided the policy meets the conditions laid down in the Income Tax Act. This forms the basis of the term insurance tax exemption for families.

Here are the other details of qualifying for the tax benefits of term insurance under Section 10(10D):

• Core Eligibility Conditions

The core eligibility condition is that the policy must satisfy the premium-to-sum assured ratio and premium thresholds prescribed by law and must be in force at the time of claim. When these conditions are met, the full payout remains tax-free.

• Non-Compliance and Loss of Exemption

If the policy does not comply with statutory conditions, the payout may lose its tax-exempt status and become taxable. The conditions included breaching the allowed premium ratio or termination due to non-compliance.

• Exceptions for Specialised Policies

Certain specialised contracts, such as Keyman insurance or corporate-owned life insurance plans, may have different tax implications. Benefits received under these may not automatically qualify for exemption under Section 10(10D).

How to qualify for term insurance tax benefits under Section 10(10D)?

The pay-outs made under a term plan to the beneficiaries on the policyholder’s demise qualify for exemption under Section 10(10D).

However, the payout received under the following circumstances does not qualify for tax exemption.

- If the death benefit is related to the Keyman Insurance Policy or.

- If premiums paid under Section 80DD(3) pertain to the expenses incurred for the treatment costs and maintenance of a differently-abled person.

Tax Benefits on Term Insurance Riders

Term insurance riders are add-ons that enhance the base policy with extra protection for specific risks. Along with wider coverage, these riders can unlock tax benefits of term insurance under different Income Tax Act sections, depending on the rider type and payout conditions.

Tax Benefits on Riders Under Section 80C

Premiums paid for life-related riders, such as accidental death benefit or premium-return features included in the base policy, qualify for Section 80C deductions only under the old tax regime.

Individuals and HUFs can claim this for policies covering self, spouse, children, or HUF members. The ₹1.5 lakh annual limit applies, subject to premium-to-sum assured rules, shared with other 80C investments, and only for premiums actually paid while the policy remains active.

Tax Benefits on Health-Related Riders Under Section 80D

Premiums for health-related riders like critical illness or hospital care qualify for deductions under Section 80D, available only under the old tax regime. Higher limits apply for senior citizens, and the deduction limits are ₹25,000 for self, spouse and dependent children, ₹25,000 for parents (₹50,000 if parents are senior citizens), and ₹50,000 where the taxpayer is a senior citizen, also deductions are allowed only on premiums actually paid during the year.

These benefits are over and above Section 80C, boosting overall savings. Limits depend on who is insured and their age—refer to the table for details.

Tax-Free Payouts on Riders Under Section 10(10D)

Payouts from riders, such as accidental death or critical illness, are tax-free under Section 10(10D) when statutory conditions are met. The nominee or beneficiary receives the lump sum without tax, provided premium-to-sum assured limits are followed. These exemptions apply independently of Section 80C or 80D deductions, protecting payouts from tax.

Who Can Claim Tax Benefits Under Section 80D?

Both individuals and Hindu Undivided Families (HUFs) can claim term insurance tax benefits under Section 80D for premiums paid towards health insurance and eligible health-related riders. Deductions are available for premiums paid for self, spouse, dependent children, and parents.

The maximum deduction limits depend on age:

• Up to ₹25,000 for adults below 60 years

• Up to ₹50,000 for senior citizens

Health-related riders included in term insurance plans, such as critical illness riders, are eligible for deduction under Section 80D. However, they must be related to medical protection. Only the actual premiums paid during the financial year are considered for deduction, and claims must follow the limits and conditions prescribed under the Income Tax Act.

What Payments Can Be Claimed for Tax Deductions Under Section 80D?

Under term insurance tax benefits, premiums paid for health insurance policies and health-related riders attached to term insurance can be claimed as a deduction under Section 80D. You can claim deductions for premiums paid for self, spouse, and dependent children, as well as separately for parents.

The limits differ by age:

• Up to ₹25,000 for adults below 60 years

• Up to ₹50,000 for senior citizens

You can also claim up to ₹5,000 per year for preventive health check-ups within the overall Section 80D limits. If both self/family and parents are senior citizens, the combined maximum deduction can go up to ₹1,00,000 in a financial year over and above the 80C deduction. These deductions are over and above Section 80C, helping you boost total tax savings without overlap.

What Is Not Covered Under Section 80D of the Income Tax Act?

You can claim a deduction under Section 80D for the premiums paid towards health insurance plans and health-related riders included in a basic term insurance plan. The major tax benefit for the policy premium towards term insurance plans can be claimed under Section 80C. Only the premium portion allocated for riders covering specific critical or terminal illnesses is eligible for tax deduction under Section 80D. 

Not all riders are eligible for deduction under Section 80D. Though an accidental death benefit rider enhances the coverage to a significant level, the premiums paid for this rider do not qualify for deduction under Section 80D. 

The treatment costs incurred also do not qualify for tax deduction under Section 80D. 

Also, premiums paid in cash are not considered for tax deductions. 

Steps to Claim Tax Benefits for Term Insurance

Claiming tax benefits of term insurance differs for salaried and self-employed individuals. This section explains the step-by-step process, required forms, and documents needed to claim deductions under Sections 80C and 80D correctly.

Salaried Individuals

1. Salaried employees usually claim deductions through Form 12BB at the start or during the financial year by declaring their planned investments and insurance premiums.

2. You should include premiums paid for your term insurance policy under Section 80C and premiums for eligible health-related riders under Section 80D.

3. Keep all premium receipts and policy certificates safely, as your employer may ask for proof before allowing the deduction from payroll.

4. Once submitted and verified, the claimed amounts are reflected in your Form 16, which shows the total deductions considered while calculating TDS.

5. Ensure the figures in Form 16 match your actual payments to avoid mismatches or notices at the time of filing your income tax return.

Self-Employed Individuals

1. Self-employed taxpayers claim term insurance tax benefits directly while filing their Income Tax Returns.

2. The actual premiums paid for term insurance can be claimed under Section 80C. Premiums for eligible health-related riders can be claimed under Section 80D.

3. The maximum limits apply only if your total eligible premiums reach those caps

4. You can also claim deductions proportionate to what you actually paid during the year.

5. Maintain digital or physical copies of payment receipts and policy documents as proof in case of scrutiny.

6. If applicable, note that premiums does not change deduction eligibility, as deductions are based on the premium amount paid during the financial year.

Avoid Common Mistakes When Claiming Term Insurance Tax Benefits

While term insurance offers valuable tax savings, small errors in claiming deductions can reduce your benefits. This section highlights common mistakes and best practices to use Sections 80C and 80D fully.

1. Not Claiming Premiums Paid Including GST

Premiums paid for term insurance, including applicable GST, are eligible for tax deductions under the relevant sections.However, in light of the recent GST reforms proposing exemption on term insurance premiums, the GST component may no longer apply where such exemption is notified and implemented; however, group term insurance policies continue to remain taxable and GST is still applicable on such premiums.

Many people previously mistakenly claimed only the base premium and ignore GST even though the entire amount actually paid to the insurer (including GST, where applicable) forms part of the eligible premium for deduction, which reduced the total deduction they can claim and reduced tax benefits, especially in cases where GST is still levied, such as on group policies. This is a common and easy-to-avoid mistake if you keep clear premium receipts and annual statements

Tip: Always calculate the full amount paid for the policy, including taxes and charges, before filing your return.

2. Missing Documentation

Keeping premium receipts, payment certificates, and policy documents is essential for claiming deductions accurately. Missing or incomplete documents can lead to incorrect claims or even disallowance by the Income Tax Department during verification. Hence, proper documentation simplifies compliance and helps avoid unnecessary disputes.

Tip: Store your records securely (both digitally and physically) and ensure they are easy to access during tax filing or audits.

3. Excluding Eligible Riders

Premiums paid for eligible riders, such as critical illness or disability riders, can qualify for additional deductions under Section 80D and Section 80C deductions for the base plan. Many policyholders forget to include rider premiums when claiming deductions and miss out on extra tax savings.

Tip: Review all add-ons in your policy and ensure each eligible rider is accounted for while filing your tax return.
 

How Tax Benefits of Term Insurance Differ Under the Old and New Tax Regimes

Tax benefits of term insurance vary significantly under the old and new tax regimes, so understanding which deductions and exemptions apply before filing helps you choose the right regime and plan your taxes better.

The table below shows a comparison of deductions under the Old Tax Regime and the New Tax Regime:

Conclusion

Term insurance tax benefits make term plans valuable not only for protecting your family’s financial future but also for saving on taxes. The premiums you pay for the base term insurance policy qualify for deductions under Section 80C, helping reduce your taxable income. Also, premiums paid for health-related riders such as critical illness or hospital care can be claimed separately under Section 80D. This allows you to enhance coverage while increasing tax savings.

The death benefit paid to your nominee is fully tax-exempt under Section 10(10D). This ensures your family receives the entire payout without any tax burden. Hence, whether you choose a basic cover or a 2 crore term life insurance policy, tax benefits continue to improve overall affordability.

FAQs on Tax Benefits of Term Insurance

1. Are term insurance tax benefits available under the new tax regime?

No, the tax benefits of term insurance are not available under the new tax regime. If you choose the new regime, you cannot claim deductions under Chapter VI-A of the Income Tax Act, 1961 like Sections 80C or 80D for term insurance premiums or riders. These benefits apply only under the old tax regime. However, exemptions on death benefit payouts under Section 10(10D) continue to apply if policy conditions are met, regardless of the regime chosen.

2. Which term insurance premiums qualify for deduction under Section 80C?

Premiums paid for the base term insurance policy qualify for deduction under Section 80C, subject to the ₹1.5 lakh annual limit and premium-to-sum assured conditions. The policy must be in force during the year, and the deduction is available only under the old tax regime. Premiums paid for self, spouse, or children are eligible within the overall limit under Section80C.

3. Can I claim tax benefits on term insurance riders?

Yes, you can claim deductions on eligible riders. Life-related riders may be included under Section 80C as part of the base premium, while health-related riders like critical illness qualify under Section 80D. These rider deductions are allowed only under the old tax regime and only for premiums actually paid during the financial year.

4. Can senior citizens claim higher deductions on term insurance riders?

Yes. When health-related riders cover senior citizens (aged 60 or above), higher deduction limits apply under Section 80D. This means premiums paid for eligible riders for senior citizens can be claimed up to the enhanced deduction limit of ₹50,000, prescribed for seniors. However, the payments need to be made in the same financial year and claimed under the old tax regime.

5. Can I claim both Section 80C and Section 80D benefits together?

Yes, you can claim both deductions together under the old tax regime. The base term insurance premium can be claimed under Section 80C. Premiums for eligible health-related riders can be claimed separately under Section 80D. Using both sections together helps you maximise term insurance tax benefits and overall tax savings.