LIC Digi Term Plan 876: Death Cover, GST Exemption and Tax Rules

Summary: LIC’s Digi Term, Plan 876 (UIN 512N356V02), is an online-only, non-participating, non-linked individual term insurance product. The official version-02 brochure provides level and increasing death-cover options, regular, limited and single premium choices, a minimum basic sum assured of ₹50 lakh and specific eligibility, revival and cancellation rules. It has no maturity benefit or policy loan; the treatment of unexpired risk premium on discontinuance depends on the payment option. Individual life-insurance premiums have been GST-exempt since 22 September 2025 under Notification 16/2025-Central Tax (Rate), whereas group cover is treated differently. For Tax Year 2026–27, the Income-tax Act, 2025 governs new income and corresponding life-insurance deductions and exempt receipts; legacy section references remain relevant to earlier years. This article separates contractual insurance terms, tax law and dated illustrative premium figures, without offering a recommendation or treating an old quotation as a current premium.

Product Identity and Source Control

LIC identifies Digi Term as Plan No. 876 with unique identification number 512N356V02 in its September 2026 term-plan catalogue. The operative product is the V02 version: the sales brochure is dated 14 November 2024, and LIC continues to host the brochure, policy document and customer information sheet on its current product page. A document carrying V01 or an older illustration must not silently be treated as the current contractual wording. The final policy schedule, accepted proposal, underwriting terms and endorsements govern a particular customer’s cover.

The product is pure-risk life assurance rather than an investment, pension or money-back scheme. Its primary economic purpose is to provide a contractual payment following an admissible death claim during the policy term. A household assessing the product should distinguish the sum assured, actual sum assured on death, premium-payment period and the years for which the risk cover remains in force. Those are four separate data points and can differ substantially.

Two Death-Benefit Options and How They Differ

Level Sum Assured

Under Option I, the absolute amount assured on death remains equal to the basic sum assured throughout the policy term. This is straightforward to read but does not increase automatically as living expenses, liabilities or dependants’ needs change. The benefit actually payable also incorporates the contractual minimum death-benefit tests, so the claim amount is not determined merely by multiplying the basic sum assured by a factor without checking the policy conditions.

Increasing Sum Assured

Under Option II, the absolute death-cover amount stays equal to the basic sum assured through the fifth policy year. It then increases by 10% of the original basic sum assured each policy year from the sixth through the fifteenth, reaching twice the basic sum assured. It stays at that doubled amount from the sixteenth policy year. The increase is not a compounded annual growth rate; it is a fixed increment calculated on the original basic sum assured. The chosen death-benefit option cannot subsequently be changed.

The above table illustrates the absolute death-benefit amount, not a binding quote or necessarily the final sum assured on death. For regular and limited premium policies, the brochure defines the sum assured on death as the highest of seven times annualised premium, 105% of total base premiums paid to date and the applicable absolute amount assured. For a single premium policy, the relevant comparison is the higher of 125% of single premium and the absolute amount assured. Definitions exclude specified taxes, extra premiums and other charges; the policy schedule must be read.

Eligibility, Underwriting and Premium Structure

The brochure permits entry from 18 to 45 years, but a particular requested combination of age, term, sum assured and payment option may be restricted. Level cover can run for up to 40 years subject to the maximum maturity age. Increasing cover has additional age- and cover-band-specific maximum-term tables; it is unsafe to apply a blanket 40-year maximum to every proposal. Minimum instalment premium is ₹3,000 for regular or limited-payment cases and ₹30,000 for single-premium cases in the brochure.

Premiums depend on age, gender, smoking classification, underwriting evidence, policy term, payment term, sum assured and selected cover option. The brochure provides special rates for women, a high-sum-assured rebate and smoker/non-smoker rates. LIC states that non-smoker rates depend on the urinary cotinine test; merely selecting “non-smoker” on a form is not sufficient. Medical tests, occupational or health loadings and acceptance terms can alter the payable amount. Annual and half-yearly premium modes are available for regular and limited payments, with a brochure-based 2% premium-conversion rate for half-yearly mode.

A 2024 brochure illustration for a 30-year-old male standard non-smoker, ₹50 lakh basic cover and a 20-year policy term shows a ₹4,700 annual regular premium under the level option and ₹6,600 under the increasing option, exclusive of taxes. These are historical illustrations only, not verified 9 October 2026 quotations. Current pricing must be obtained from LIC’s online proposal process, with the final V02 quote, any medical loading and the applicable GST treatment retained.

GST Exemption from 22 September 2025

Notification No. 16/2025-Central Tax (Rate), dated 17 September 2025 and effective 22 September 2025, exempts the specified supply of individual life-insurance services. The Department of Financial Services’ January 2026 FAQs explicitly distinguish individual life cover from employer-sponsored group life and group credit-life policies, which continue to attract GST at 18% under the cited position. The change is an exemption, not a general zero-rating of insurance services. The tax on an individual premium paid in October 2026 should therefore be examined under the notified exemption, rather than adding the 18% charge shown on a pre-September-2025 quotation.

The transition rules matter for historic invoices and advances. The official FAQs say instalment premiums paid on or after 22 September 2025 qualify for the exemption; pre-effective-date transactions may require the time-of-supply analysis in section 14 of the CGST Act. The GST benefit should not be confused with an income-tax deduction. For insurers, exemption can also affect input-tax-credit recovery and the pricing of services; it does not itself change the contractual basic sum assured.

Income-Tax Treatment in Tax Year 2026–27

The Income-tax Act, 2025 took effect on 1 April 2026. Income for Tax Year 2026–27 is governed by that Act, while FY 2025–26 / AY 2026–27 returns and proceedings remain under the 1961 Act. The life-insurance premium deduction formerly located in section 80C is now principally addressed in section 123 of the 2025 Act, subject to the old-regime election, eligible relationship, statutory aggregate cap, premium-to-cover limits and other conditions. Under the default new regime in section 202 (formerly section 115BAC), the ordinary life-insurance premium deduction is generally unavailable. Buying cover does not automatically create a tax saving.

Receipts under life insurance are addressed through section 11 read with Schedule II of the 2025 Act, corresponding to former section 10(10D). Death benefits under a normal individual life policy generally retain exempt treatment subject to the precise statutory conditions and exceptions, including Keyman insurance. This product has no maturity benefit, so discussions of tax-free maturity proceeds on savings plans are not a reason to purchase it. A surrender-related or other unusual receipt should be examined under the applicable statutory classification rather than assumed to be a death claim.

A policy issued before 1 April 2026, or a premium deducted in an earlier assessment year, requires a year-specific comparison. TaxGuru editorial coverage should name both the relevant tax year and the Act applied, rather than referring generically to “section 80C for FY 2026–27”. Non-resident policyholders and foreign beneficiaries should consider residence, withholding, treaty and foreign-country tax rules separately.

Lapse, Revival, Cancellation and Claim Risk

Regular and limited-premium policies carry a 30-day grace period for yearly or half-yearly premiums, during which risk cover continues according to the brochure. If payment is not made before the grace period ends, the policy lapses and the stated benefits cease. Revival is possible within five consecutive complete years from the first unpaid premium and before maturity, subject to arrears, interest, evidence of continued insurability and LIC acceptance. The historical revival interest rate shown in the 2024 brochure is not a current rate and should not be quoted as such.

There is no paid-up value, conventional surrender value or policy loan. However, the brochure recognises an “unexpired risk premium value” in specified cases: single-premium policies may have a value during the term, and limited-premium policies may qualify after at least three consecutive years of full premiums; regular-premium policies have no amount payable on surrender. This distinction prevents the inaccurate blanket statement that no amount can ever be paid when Digi Term is discontinued.

The 30-day free-look period runs from receipt of the electronic or physical policy document, whichever is earlier, and refund is subject to deductions such as proportionate risk premium, medical examination cost and stamp duty. The suicide clause provides a specified refund-based treatment for suicide within 12 months of risk commencement or revival, with distinct conditions for single versus recurring premium policies. Material non-disclosure can create claim disputes, subject to section 45 of the Insurance Act, 1938. Accurate medical, occupation, tobacco and existing-policy disclosures are therefore operationally important.

Claims, Documentation and Consumer Protection

For an admissible claim, the nominee should have the policy schedule, identity and bank documents, death certificate and any additional claim evidence sought under the policy. The policyholder should check nomination, address, mobile number, email, premium receipts and payment mandates while alive. A term plan with an incorrect nominee or incomplete disclosure can produce avoidable delays even when the underlying insured event is covered.

The brochure allows the insured to elect death-benefit instalments over five, ten or fifteen years, subject to minimum instalment amounts and LIC’s applicable calculation basis. A nominee cannot simply change an irrevocably exercised option after death. Complaints may be escalated through LIC’s grievance system and then the IRDAI Bima Bharosa mechanism or the Insurance Ombudsman where jurisdiction permits. A financial comparison should assess the nominee’s cash-flow needs as well as the nominal claim amount.

Frequently Asked Questions

1. Is LIC Digi Term 876 available offline through an agent?

The V02 brochure describes the product as online-only and purchased directly through LIC. Confirm the official online application channel and avoid treating an intermediary’s marketing page as the policy contract.

2. Does the plan return premiums if the insured survives?

No maturity benefit is payable on survival to the end of the policy term. Limited discontinuance-related unexpired-risk-premium amounts are different from a return-of-premium maturity feature.

3. What is the minimum life cover?

The V02 brochure states ₹50 lakh basic sum assured. Higher coverage is subject to eligibility and underwriting; amounts above ₹5 crore may be considered case by case.

4. Is the increasing option a 10% compound increase?

No. It adds 10% of the original basic sum assured in each year from policy year six through fifteen, reaching twice the original amount, and then stays level.

5. Is 18% GST payable on a new individual Digi Term premium in October 2026?

Individual life-insurance premiums are covered by the notified exemption effective 22 September 2025. Check that the actual contract is an individual policy and not a group arrangement.

6. Can the premium be deducted under section 80C for Tax Year 2026–27?

The 2025 Act applies from 1 April 2026; the corresponding premium deduction is under section 123 and generally requires the old tax regime and satisfaction of the statutory conditions. The old section 80C applies to prior tax years.

7. What happens after a missed premium?

There is a 30-day grace period for yearly or half-yearly recurring premiums. A lapsed policy may be revived within the prescribed five-year window only on LIC’s terms and acceptance.

8. Can the insured take a loan against the policy?

No. The official brochure states that no policy loan is available, reflecting its pure-risk nature.

Key Takeaways

• Digi Term V02 is a pure protection contract: there is no maturity payout or policy loan.
• The two death-cover choices differ materially; the increasing option reaches twice the basic cover by policy year fifteen.
• LIC’s dated brochure and current accepted policy schedule—not old online premium examples—control benefits and pricing.
• Individual life insurance is GST-exempt from 22 September 2025; group cover is outside that general exemption.
• Tax Year 2026–27 uses the Income-tax Act, 2025, including section 123 and section 11/Schedule II; earlier years use the 1961 Act.
• Missed premiums, medical disclosure, nominee records and the 30-day free-look window have direct claim and financial consequences.

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Disclaimer: This article is for general information and education as at 9 October 2026, not an insurance solicitation, policy quotation, tax opinion or recommendation. The LIC V02 brochure dated 14 November 2024 and current official product listing were reviewed, but actual underwriting, premium, benefits, endorsements and acceptance depend on the issued policy documents and insurer confirmation. Statutes, notifications, regulatory directions, GST treatment and income-tax provisions can change, and the Income-tax Act, 2025 governs Tax Year 2026–27 while earlier periods may remain subject to the 1961 Act. Readers should verify their specific facts and obtain qualified advice. Neither TaxGuru nor its authors accept responsibility or liability for errors, omissions, reliance, claim decisions or financial loss arising from use of this article.

Official Documents and Related TaxGuru Reading

LIC Digi Term 876 V02 — official product page

LIC Digi Term V02 — official 10-page sales brochure

LIC — current term-plan catalogue

Department of Financial Services — GST exemption FAQs

Income-tax Department — 2025 Act transition FAQs

TaxGuru — impact of GST exemption on insurance premiums