Life Insurance November 12, 2020

Tax Benefits on a Life Insurance Policy

Life is full of uncertainties, and you would surely not want your family to suffer financially in case something unfortunate like a death happens to you. So, what is a suitable way to be ready for such uncertainties? The answer to this question is a Life Insurance Policy that covers you and your family. Several Insurance Companies provide Life Insurance policies to individuals from different age groups. Other than ensuring a financial safety net for your loved ones in your absence, a life insurance plan can also provide several tax benefits to you.

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Life Insurance Tax Benefits are available under different sections of the Income Tax Act, 1961, not only on the premium paid towards the policy but also on the maturity amount received. These tax benefits further encourage individuals to go for a Life Insurance Policy to build a better future for their families. So, what are the different Life Insurance Tax Benefits that you can enjoy? In this article, we will be telling you about each tax benefit in detail. Keep reading to know the same.

What are Different Life Insurance Tax Benefits?

As we said earlier, you can get tax benefits under different sections of the Income Tax Act, 1961- Section 80C, Section 80D, Section 10(10D), etc. Tax benefits will apply to the premium paid for the policy and the payout on your policy. Let’s check out the benefits of different sections one after another.

Tax Benefits on Premium Paid under Section 80C

For the life insurance policies of yourself, your spouse or your dependent children, you can enjoy tax benefits on the premium amount under Section 80C of the Income Tax act. Premium paid towards a life insurance policy of an Insurance Company, which is approved by the Regulatory and Development Authority of India (IRDAI) will be eligible for tax benefits under Section 80C. Both individuals and members of the Hindu Undivided Family (HUF) can also avail of the tax benefits under Section 80C.

Keep in mind the following things while claiming Tax Benefits on Premiums paid towards Life Insurance Policies under Section 80C.

  1. If your Life Insurance Policy has been issued before March 31, 2012, you can only get a tax deduction under Section 80C if the total premium paid is not above 10% of the sum assured. The ‘Sum Assured’ basically means the minimum amount promised by the company to the survivor.
  2. For the Life Insurance Policies that have been issued on or after April 1, 2012, you can tax deductions on the premium paid, which should not exceed 20% of the Sum assured.
  3. There is an important thing you need to remember about the Life Insurance Policies issued on or before April 1, 2013. If these policies are issued in the name of any person who is suffering from a disability as mentioned in section 80U or suffering from a disease in Section 80DDB, you can get a maximum deduction on premium up to 15% of the Sum Assured.

Tax Benefits on Premium Paid under Section 10(10D)

Individuals also get Life Insurance Tax Benefits under Section 10(10D) on the receipt of Insurance Payouts, whether as Sum Assured or Coverage. These payouts will be given to the nominee as a Death Benefit to the nominee or as a survival benefit to the insured person or bonuses (if any) on maturity. However, there are a few conditions when payouts will not have any tax benefits. Check out such conditions below.

  1. There will not be any tax benefits on the payout received for Life Insurance Policies issued on or after April 1, 2003, but on or before March 31, 2012,  under this section, unless it is received as a Death Benefit.
  2. If the Total Premiums Paid during the overall policy period are more than 20% of the Sum Assured received, there will be no tax benefits too.
  3. On the Keyman Insurance Policy, individuals will not receive any tax benefits on the payout amount under this section. Keyman Insurance Policy is one special insurance plan offered to companies and organizations to cover a few Key People in the organization. Since the death benefit under such policies goes to the company, you will not receive any tax benefits.
  4. For the policies issued on or after April 1, 2012, you will receive tax benefits only if the total premium paid is not more than 10% of the total sum assured.

Tax Benefits under Section 80D

Insurance Companies also provide several additional riders such as Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc. Under Section 80D, individuals can also get tax benefits on the premium paid towards such Life Insurance Policies. On the premium paid for policies for yourself, spouse, dependent children and parents, you can enjoy such tax benefits.

We are showing some important things below regarding these tax benefits under Section 80D. Have a look!

  1. On premiums paid towards Insurance Policies, individuals can only get a tax deduction of up to INR 25,000. It is the maximum limit when it comes to the Health Insurance Premiums with additional rider benefits.
  2. If you are paying the premium for a Health Insurance Premium – which is in your dependent parents’ name – you can enjoy additional Life Insurance tax benefits of INR 25,000 under Section 80D of the Income Tax Act.
  3. For the premiums you will pay for the policies in the name of your Senior Citizen Parents, you can claim tax deductions of up to INR 50,000.

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