Term Insurance 1276 views September 14, 2019

Your sense of financial security is incomplete without having a term insurance plan in place. This is because, unlike other plans, term insurance policies promise you a definite amount of sum assured in the event of sudden death, disability or disease. However, there is more to investing in term insurance than just availing the security of death payouts. Term insurance policyholders can also avail tax benefits in the process.

Term Insurance

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Who avails the tax benefits?

To start with, the policyholders alone do not enjoy the tax benefits. In fact, the dependents of the policyholders also benefit from the tax exemptions.

Benefiting under Section 80C of the Income Tax Act

Term insurance involves regular payment of premiums. The premiums paid on term insurance are eligible for tax deduction under Section 80C of the Income Tax Act. However, the aforementioned deduction is subject to certain conditions. These may include:

  1. For term insurance plans issued on or after April 01, 2012, policyholders will avail tax deduction on the premiums paid only to up to 10 percent of the total sum assured;
  2. For term insurance policies issued on or prior to March 31, 2012, policyholders can seek tax deduction benefits on the total premiums paid provided the premium amount does not exceed 20 percent of the sum assured.
  3. Policyholders diagnosed with any critical disorder or suffering from any disability may avail tax benefits on premium charges provided the premium amount is not more than 15 percent of the total amount of sum assured. However, this clause is applicable only on those term insurance plans bought on or after April 01, 2013.

Benefiting under Section 10 (10D) of the Income Tax Act

This tax benefit is availed by dependents or your nominees alone. Under Section 10(10D) of the Income Tax Act, any amount received as the death benefit is exempt from tax. This means that the nominee can claim exemption from tax on the amount sum assured received from the life insurance company.

Tax benefits mentioned in the aforementioned cases are available to both individuals and members of Hindu Undivided Families (HUFs).

Do You Know About Policy Refunds?

The purpose of buying term insurance is to ensure complete financial security. A pure insurance plan sold by life insurance companies in India, most buyers are deceived as agents missell these policies as high-earning investment products.

To ensure that policyholders are not cheated and avail the kinds of benefits they look for while buying any insurance product, the Insurance Regulatory Development Authority of India (IRDAI) allows the provision of the free-look period. As per this provision, policyholders realizing that the benefits of the policy in hand are different from that are being sought can return the policy within 15 days from the date of policy receipt. However, if the policy had been bought through distance marketing, then the free look period extends up to 30 days from the date of policy receipt.

Policyholders have to intimate about their decision to cancel the policy by simply sending a letter to the insurance company explaining the reason for cancellation along with the original policy document. The insurance company would refund the premium amount paid only after deducting the proportional amount of risk premium cover apart from any expenses incurred on medical examination of the policyholder along with stamp duty.

Concluding Arguments About Tax Benefits and Refund Details About Term Insurance

Many people opt to buy term insurance in a bid to earn tax benefits. This approach towards buying a term insurance plan must always be avoided. The purpose to pay for term insurance is to ensure an adequate amount of financial security that would cover for the life of the insured. This amount of sum assured (also called death benefits) must be calculated after considering the potential needs of dependents in future, current loans, possible liabilities, and expenses in future, inflation rate, the value of existing assets and the extent of their liquidity.

The fact that term insurance ensures tax benefits to serves as an icing on the cake considering that you have already ensured the much-needed insurance cover. While no other investment option or financial instrument serves to insure one’s life better than a term policy, knowledge of the tax benefits also helps to seek the necessary deductions while filing income tax returns.

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