Tax Benefits of Term Life Insurance in India

• Premiums as low as Rs.17/day for sum assured of Rs.1 crore*
• Claim up to Rs. 1,50,000 deduction under section 80C**
• Choose between annual and monthly premium payment options

A term insurance policy is a kind of life insurance plan that offers certain claim benefits to the beneficiary of the insured, post the policyholder’s unfortunate death due to an accident. A term insurance plan, as the name suggests is valid for a specific period alone, unlike the normal life insurance plans that are valid for a year. Term insurance plans can be availed for any number of months, depending on the policyholder’s requirements. A term insurance plan comes with a number of benefits for the insurer as well as the policy beneficiary. One of the several benefits of having a term life insurance plan are the tax exemptions and tax deductions offered under the Income Tax Act 1961, that allow the policyholder to save on tax.

Tax benefits offered under Term Life Insurance Plans

The following are the tax benefits offered under the term life insurance plans:

• Tax benefits under Sections 80C and 80CCC

Tax deductions are offered under Sections 80C and 80CCC.

Individuals as well as HUFs (Hindu Undivided Families) insured under the policy can claim tax deductions under the Section 80C.

In case of individual policyholders, the following people are eligible to claim the tax benefits under section 80C:

1. The insured himself/herself
2. The spouse of the policyholder
3. Dependent children/child of the policyholder

In case of HUFs, any family member who is insured under the same term insurance plan is eligible to claim the tax deductions under section 80C.

Tax benefits of term life insurance are offered under the section 80C of India’s Income Tax Act 1961 and includes the following:

1. A tax deduction of upto Rs.1.5 lakh can be availed every year under the term insurance plan if the insured is suffering from any ailments/disabilities. In such cases he/she is eligible to claim tax deductions if the insurance premium paid is less than 15% of the total claim amount.
2. A tax deduction of upto Rs.1.5 lakh can be availed every year under the term insurance plan if the term insurance policy has been issued on or before 31 March 2012. In such cases the insured can avail a tax deduction only if the total insurance premium amounts to 20% of the claim amount.
3. A tax deduction of upto Rs.1.5 lakh can be availed every year under the term insurance plan if the policy has been issued on or after 1 April 2012. In such cases the insured is eligible for tax deductions only if the total insurance premium amounts upto 10% of the maximum claim amount.

• Tax benefits under Section 10 (10D)

Tax exemptions are offered under Section 10 (10D). Under this section, any amount offered at the time of the policyholder's death or when the plan matures, including the bonuses, is exempted from any tax. This is applicable regardless of where the amount is received; in India or in any of the foreign country.

The insured will not be exempted from tax under the following cases:

1. Any amount received under the Sections 80DD (3) or 80DDA (3) of the Income Tax Act 1961.
2. Any amount obtained under the Keyman Insurance Policy
3. Any amount received which is not a part of the death benefits of a term insurance plan issued on or before 31 March 2012 and not on or after 1 April 2003.
4. If the insurance premium paid during the plan tenure amounts to over 20% of the total claim amount received.
5. If the term insurance plan has been issued on or after 1 April 2012 and the insurance premium paid is more than 10% of the claim amount.

• Tax benefits under Section 80D

Under Section 80D of the Income Tax Act, 1961 the insured is eligible for tax benefits on health insurance policy premiums. This is applicable if the term insurance plan availed has covers such as Surgical Care Rider, Critical Illness Rider, Hospital Care Rider, etc. inbuilt or availed as an add-on cover.

In case of HUFs, any family member who is insured under the same term insurance plan is eligible to claim the tax deductions under section 80D.

In case of individual policyholders, the following people are eligible to claim the tax benefits under section 80D:

1. The insured himself/herself
2. The spouse of the insured
3. Dependent children of the insured
4. Parents of the insured whether dependent or not

The following tax benefits are offered under the Section 80D of the Income Tax Act, 1961:

1. The insured is eligible for tax deductions if the insured amount does not exceed Rs.25,000.
2. An additional tax deduction of Rs.25,000 is applicable if the insured has purchased the term insurance policy in his/her parent’s name.
3. The policyholder is eligible to avail a higher tax benefit that amounts to Rs.30,000 if he/she has purchased a term insurance policy in his parent's name who is a senior citizen.

Refunds in term insurance plan

In case the insured isn’t happy with the insurance plan he/she has bought, the same can be returned in the free-look period. A free-look period is one of IRDAI’s regulatory measures to create a consumer-friendly environment. Under this regulatory, if the insured realises that the policy purchased doesn’t adhere with the terms and conditions, the same can be returned to the insurer within a specified period. When returning the policy, the insured should give the insurer a valid reason behind the decision to return and then ask for a refund of the premium paid. In case the insurance policy was purchased via distance marketing, the free-look period would be 30 days starting from the inception of the policy.

In order to avail the refund under the term insurance policy, the insured needs to send a letter to the insurer intimating about the decision to cancel the existing plan. The insured should also submit the original insurance policy document along with the letter to the insurer. The insurer will process the request and refund the amount after deducting a small portion as a risk premium for the policy period. If any medical expenses have been covered by the insurer under the policy, the amount of coverage offered to the insured will also be deducted from the refund offered.