Written By: varun saxena

varun saxena

Term & Life Insurance

I am a passionate content writer with over three years of experience in the insurance domain. An avid learner, I always tries stays ahead of the industry's trends, ensuring my writing remains fresh and includes the latest insurance shifts. Through my work, I strive to engage with targeted insurance readers.

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Reviewed By: Sharan Gurve

Sharan Gurve

Term & Health Insurance

Sharan Gurve has spent over 9 years in the insurance and finance industries to gather end-to-end knowledge in health and term insurance. His in-house skill development programs and interactive workshops have worked wonders in our B2C domain.

Updated on Apr 08, 2025 3 min read

What is Term Insurance Tax Benefit?

You can save on taxes and protect your family's future with term insurance. With a regular term insurance plan, you not only safeguard your loved ones but also enjoy tax benefits for up to 1.5 lacs under section 80 C of the Income Tax Act 1961. It's a smart way to get your life covered and reduce your tax burden.

Types of Tax Benefits Available Under Term Insurance: An Overview

What are the Different Types of Tax Benefits Available under Term Insurance?

Term insurance offers different tax benefits on different features such as premium payment and sum assured.

Given below are the various tax benefits available under term insurance.

1. On premium payment

   Similar to the Public Provident Fund(PPF), tax-saver Fixed Deposits (FDs), National Savings Certificate (NSC) and even repayment of home loan principal, term insurance also offers a tax saving option under Section 80C of the Income Tax department. The policyholder can avail of the deductions of up to INR 1.5 lakh under this section on annual premium payments.

   Let us understand in depth:

   Mr Sangar, 30 years old, has a term Insurance plan of INR 1 crore for which he pays INR 10,000 premium without GST annually. Through this, Mr Sangar can save the tax of INR 10,000 annually under the 80C section of the IT department.

   However, there are certain conditions applied to avail of the benefit on the premium paid, such as:

   • The annual premiums paid must not exceed 10% of the sum assured amount. In case, the premiums do exceed 10%, then the deductions will be applied proportionately.
   • For policies issued before 31st March, the deduction will be applicable only if the yearly premium does not exceed 20% of the sum assured.
   • As per Section 80C(5), in case, a policy is voluntarily surrendered or terminated two years from the beginning of the policy, the policyholder is not eligible to receive Section 80C tax benefits on premium payments.

2. On Sum assured

   There are different payouts done in a Term Insurance plan and this nature of the scheme has another crucial role to play in saving tax in all situations.

   Firstly, the sum assured amount received as a death benefit is again exempted under Section 10(10D) of the Income Tax Act. This means that when a nominee or beneficiary of the term insurance plan gets the sum assured amount post the demise of the policyholder the person is entitled to get the entire amount promised in the plan without any tax deductions.

   Nowadays, there is a huge demand for a Term Insurance Plan with a Return of Premium wherein the policyholder is entitled to get the maturity benefit of the plan in case he/she survives the term insurance plan. In this case, the term insurance payout is entirely tax-free under Section 10(10D) of the Income Tax Act.

   Let us understand in depth:

   Mr. Sharma has a Term Insurance plan for INR 50 Lakh sum insured. He passed away during the policy tenure and his family is entitled to receive the sum assured amount. So Mr. Sharma’s family will receive the entire amount of INR 50 Lakh without any tax deductions under Section 10(10D) of the Income Tax Act

   However, there are some scenarios where the tax is applicable on Term Insurance payout received by the beneficiary, such as -

   • Any benefit received under Section 80 DD(3) or sub-section (3) of section 80DDA
   • Any benefit received under Keyman Insurance policy. The keyman insurance policy is the one where the proposer, as well as the premium payer, is the employer, the life to be insured is that of the employee and the benefit in case of a claim, goes to the employer.

3. Under section 80D

   It is correct that the 80D section primarily permits health insurance and its related exemptions. But, it is still unknown that a policyholder can make effective use of this section in their Term Insurance Plans as well.

   There are several health-related riders offered with Term Insurance Plans such as Critical Illness, Surgical Care, Hospital Care Rider, etc that provide the benefit of 80D. Important considerations to know about this tax benefit are:

   • Deductions under Section 80D are available for an amount of Rs. 25,000 and not more than this.
   • This tax benefit can also be taken for the insurance policy taken for your parents, up to additional deductions of Rs. 25,000.
   • For senior citizens' policies, the deduction limit goes up to Rs. 50,000.

4. Under section 10(10D)

   Along with the tax advantages granted to term insurance policyholders, there are other tax breaks to be aware of. Section 10 (10D) term insurance tax benefits allow family members to save money through tax exemptions. Section 10(10D) protects death benefits and maturity benefits from taxes. The maturity benefits of all life insurance plans issued on or after April 1st, 2024 are eligible for tax deductions only if the annual premiums paid by an individual are up to INR 5 lakh. According to the union budget proposed by the Government of India, maturity benefits, death benefits, and any cumulative bonus are tax-free if the premiums do not exceed 10% of the sum insured amount.

   It is essential to have knowledge of tax exemptions on life insurance plans to make better decisions for the financial safety of your loved ones. However, it is also essential to understand that Section 10(10D) is subject to further changes due to amendments made to the Income Tax Act. Below mentioned are the detailed explanations of how section 10(10D) aids in Term insurance tax exemption.

   • Individuals can claim tax exemptions under 10 (10D) if policy premiums paid do not exceed 20% in a single policy year.
   • In case of maturity returns the benefit amount should be the death payout.
   • This tax exemption is valid for all the returns earned via a Unit linked insurance plan (ULIP) as well.

5. Under Section 80C

   The term insurance plan offers tax benefits for up to 1.5 lacs under section 80C of the Income Tax Act 1961, for the premium paid in the same financial year.

Tax Benefits on Term Insurance Riders

Term Insurance Plans offer rider benefits to policyholders. These riders provide supplementary coverage in addition to the basic term insurance plan and also offer term insurance tax benefits. There are multiple rider options attached to a base term insurance plan such as critical illness rider, return of premium, accidental death benefit riders, and more. To understand how they help with tax exemptions

• When you purchase a term insurance plan you can avail tax benefits for Term insurance under 80d on purchasing an additional critical illness rider with your base plan.
• Term insurance tax exemption is provided to insurance holders under section 80 c when opting for riders such as the return of premium at the time of policy purchase.

Still confused about term plan deduction in income tax:

If you are still confused about term plan deduction in income tax then you can reach out to us at PolicyX.com through the below channels. We are IRDAI-certified insurance advisors and will help you to know everything about tax saving.

• For talk to our expert, you can click over the button as below:
• You can also contact us on 1800-4200-269 (Toll-free)

Conclusion

Saving money that goes into the form of tax stands as one of the top-rated reasons when it comes to buying term life insurance and it should be used effectively along with the consideration of other factors such as claim settlement ratio, exclusions and inclusions in a plan, network hospitals and many more. It is equally important to understand the amount of tax one can save in the given premium.