Term life insurance is a pure protection plan designed to provide financial security to your loved ones in your absence. Besides its core function of coverage, it also offers several tax-saving advantages. While you can use an income tax calculator to estimate your tax liabilities, it is best to be aware of the tax implications and benefits of your financial products beforehand. Let’s explore how term insurance helps with tax savings.
Term Insurance Tax Benefits Under Section 80C
One of the primary tax benefits of term life insurance is under Section 80C of the Income Tax Act, 1961. You can claim deductions up to ₹1.5 lakh per annum on the premiums you pay for your term insurance policy.
These deductions are available if the policy is in your name, or in the name of your spouse or children. However, to qualify for this deduction, the annual premium of your term insurance plan should not exceed 10% of the sum assured if the policy was issued after April 1, 2012. For policies issued until 31st March 2012, this limit is extended to 20%.
Before selecting your plan, using a term insurance calculator can help determine the right premium for the coverage aspects you desire. You can check if the premium is as per your needs and is also ideal for optimising the Section 80C tax benefit efficiently.
Term Insurance Tax Benefits Under Section 80D
If you have opted for health-related riders like a critical illness rider with your term life insurance, you may also be eligible for deductions under Section 80D. Individuals can claim up to ₹25,000 per year. If you have purchased health-related coverage for your parents and they are above 60 years of age, this limit extends to ₹50,000. This allows you to enhance your policy with useful add-ons while also enjoying added tax relief.
To make sure you make the most of the benefits provided by Sections 80C and 80D, remember to use an income tax calculator.
Term Insurance Tax Benefits Under Section 10(10D)
The maturity proceeds received by your nominee can be tax-free under Section 10(10D) of the Income Tax Act. However, the conditions required to qualify for Section 80C deductions are also applicable to qualify for tax benefits under this section. Other terms and conditions might also apply.
However, if the death benefit payout is made on the demise of the insured, it is completely tax-free. Irrespective, it is important to read the criteria laid down in this section. Consulting a financial advisor or using an income tax calculator can help you get better clarifications.
These benefits are accessible to most policyholders, provided the premium payments and policy conditions meet the Income Tax Act requirements.
However, note that Section 80C and 80D benefits are only available to taxpayers who have opted for the old tax regime. Section 10 (10D) benefits are applicable under both regimes.
Buying a term life insurance plan not only protects your family’s future but also helps you reduce your tax liability. When chosen wisely with tools like a term insurance calculator, you can ensure that your policy fits your needs while offering maximum deductions. A well-chosen term life insurance plan is a win-win: peace of mind today, and financial security tomorrow.
