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Maximizing Your Tax Savings with Term Insurance Under Section 80C


    Tax Saving

    Saving taxes is a crucial aspect of strategic financial planning. Everyone searches for various avenues to lower tax liabilities, and almost everyone lands on a term insurance plan as an effective and prudent way to save taxes while gaining a valuable asset. It has become straightforward to buy a term plan online, and almost everyone can opt for this affordable life cover. Of course, before buying your term insurance plan, you should know all the various tax benefits available, especially those under Section 80C of the Income Tax Act. 

    Tax Benefits under Section 80C

    Let us begin this discussion by understanding what is a term plan tax benefit. The Income Tax act allows for certain deductions (from taxable income) and exemptions (of life insurance payouts) under various sections. Section 80C is the one that provides for tax deductions that lower your taxable income and, consequently, your tax liability.

    Under Section 80C, the premium you pay for a term insurance plan qualifies for tax exemption benefits. The maximum tax deduction on term insurance premiums paid for oneself, one's spouse, and one's children in a fiscal year is Rs 1.5 lakh under this section. However, this will only be valid if the policy was issued before 31 March 2012. However, the condition here is that the annual premium should not cross 20% of the sum assured amount. 

    For plans issued after 1 April 2012, the tax deduction benefits will be restricted to premiums less than 10% of the sum assured. Yet, if any individual has a disability listed under Section 80U or any ailment listed under Section 80DDB, then the limit goes up to 15% of the sum assured. 

    Under Section 80C(5), if the person insured surrenders the policy voluntarily or the policy concludes within two years from the starting date, then there will be no tax benefits given. 

    In addition to Section 80C, one should understand the benefits provided under Section 10D and Section 80D to truly maximise their tax savings through a term insurance policy.

    Tax Benefits to Taxpayers Under Section 10(10D) 

    If you have a term insurance plan with a return of premium, you can claim tax benefits on the returns under section 10(10D) of the Income Tax Act, along with the benefits received under Section 80C. There is no maximum limit on the tax exemption of the death benefit paid to the beneficiaries.

    The maturity amount is, however, not always tax-free. It is taxable in case the premium of the policy surpasses 20% of the sum assured within the policy period. Yet, this happens only sometimes since the sum assured amount is mostly higher than the premium paid annually. For policies purchased after 1 April 2012, the exemption on maturity benefits is only applicable if the premium is lower than 10% of the sum assured. 

    Tax Advantages on Term Insurance Riders 

    To offer more coverage, insurers offer a variety of term plan riders. Their benefits, however, extend beyond enhancing a term plan's core components.

    You may opt for additional tax advantages of term insurance depending on the rider you select with a plan of term insurance and related criteria. Here are some ways that term insurance plan riders can enable you to receive additional tax advantages.

    ● When a critical illness rider is affixed to a term insurance policy's base, you can claim tax deductions under Section 80D. This can be up to Rs. 25,000 on the premiums paid annually. 

    ● When adding riders return of premium rider to a term plan, your overall premium may increase, but you will still save more money under Section 80C. You can always use an online calculator to calculate the payable premiums if you have added riders to your term insurance plan. 

    Summing Up

    Even though a term insurance policy provides significant tax advantages, it shouldn't just be viewed as a helpful tax-saving instrument. Along with the tax benefits, coverage should also be taken into account. This will help you make the right choice.

    In addition to the tax advantages of term insurance, you can compare various term insurance policies before you buy a term plan online. This will give you an idea of the different premiums for varying coverage amounts, inclusions and exclusions, and many other aspects. So here's to securing your family's future with a term insurance policy. 

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