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A term insurance plan is considered a valuable asset in an individual’s financial planning. It not only provides security to your loved ones but also offers the advantage of saving taxes that can reduce your taxable income significantly. For the financial year 2024-25, the Government of India encourages everyone to purchase term insurance plans by offering different tax benefits. Read this blog until the end to get a clear idea of a term insurance plan and the tax benefits you will get from investing in it.
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What is a Term Insurance Plan?
One of the simplest forms of life insurance policy you can purchase is a term insurance plan. It gives your family life coverage up to a certain period of time upon paying regular premiums. It provides a lump-sum amount (sum assured) to the beneficiaries or nominees if the policyholder passes away during the policy term.
Given its affordability and significant payout benefits, term insurance is ideal for individuals looking to ensure their family’s financial stability at minimal cost. If you start early, you can get premiums at quite a minimum cost. However, the premium rates differ according to factors such as sum assured, age, employment, health conditions, add-ons, and many more.
Types of Tax Benefits of Term Insurance Plans
Here’s an overview of the tax benefits available to term insurance policyholders:
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Section 80C: Tax Deductions on Premium Paid
Section 80C of the Income Tax Act offers a significant tax deduction on premiums paid towards term insurance plans. You can claim a deduction of up to ₹1.5 lakh on premiums paid in a financial year. This means the premium amount you pay for your term insurance plan can reduce your taxable income by a considerable margin, especially if it is within the 80C limit. Make sure the policy is in the name of the taxpayer, their spouse, or children.
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Section 80D: Tax Benefit on Additional Riders
Many term insurance plans come with optional riders, such as critical illness, surgical care, or similar covers. You will receive additional tax benefits under section 80D if you include these riders in your term insurance plan.
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Section 10(10D): Tax-free Death Benefit
Another tax benefit you get after buying a term insurance plan is that the insured amount your family receives is tax-free under Section 10(10D). They will be assured of receiving the full payout without any tax deduction, helping your dependents cover any immediate financial needs.
Claiming Tax Benefits for Term Insurance Plans
Follow the pointers below to understand the process for claiming tax benefits for term insurance plans:
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Salaried Individuals
Tax benefits on term insurance premiums under Sections 80C and 80D can be claimed by filling out Form 12BB. Form 12BB is an investment declaration form used by salaried employees to report their investments and tax-saving expenses to their employers. Submit it at the start of the financial year, along with your investment declarations. Keep your premium receipts and certificate; the tax department may request them anytime.
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Self-Employed Individuals
You must file your Income Tax Return (ITR) to claim deductions. In the ITR form, declare term insurance premiums to claim benefits under Sections 80C and 80D (for up to ₹25,000) with riders. Only the actual premium paid qualifies for deductions.
Final Thoughts
As a term insurance policyholder, it is essential to be aware of the available deductions and exemptions to maximise your tax savings. Otherwise, you may pay more tax, increasing your financial burden. The next time you file your income tax returns, make sure to claim the deductions mentioned above if you have a term insurance policy.
