Term Insurance Tax Benefits: Are There Tax Benefits on Term Insurance Riders?

What Is Term Insurance?

The term insurance plan is also known as a pure life insurance plan, where an individual gets benefits throughout a specified period. Once the insurance term expires, the owner of the insurance policy has two options to choose from. First, he can renew the term insurance for another term and convert the policy into permanent coverage. Or he can stop the term insurance plan and allow the policy to lapse. 

The significant advantage of having term insurance is that you can avail of tax benefits of 80D and 80C in the Income Tax Law of India. The term insurance is also based on a person’s age, health, and life expectancy. Depending on the insurance company's criteria, you can convert your term insurance into whole life insurance after its term has been completed. The minimum term for purchasing this type of insurance policy is 10 years. 

Term Insurance Tax Benefits

When you select term insurance, you open multiple doors from which you can avail tax benefits over your income. The most common tax benefit you get to enjoy is the one that can be found in tax u/s 80c and 10(10D) of the Income Tax Act of India, which was first published in 1961. With term insurance, you can easily claim the deduction up to Rs 1.5 lacs years on the paid premiums under Section 80C. On the other hand, the death benefit of your term plan will be exempted from your income tax under section 10(10D). Apart from these two, there are other term insurance tax benefits that you can avail yourself of during a financial year. 

Is Term Insurance Covered Under Section 80C?

According to the Income Tax Act (ITA), a person is eligible for tax exemption on the premium paid towards a term insurance policy. The amount limited for the tax exemption is Rs 1.5 lacs per year. In addition to this, a person can avail of term insurance and pay its premium for their spouse and children. Even this form of insurance policy is eligible for tax exemption. Keep in mind the tax exemption can only be availed on those policies which are issued before 31st March 2012. 

Term insurance which is issued after 1st April 2012, still gets tax benefits under Section 80C of ITA. But here, the benefits which one can avail are only limited to the 10% of the sum assured in the term insurance. On the other hand, if a person has any disability which is listed u/s 80U or from any illness listed u/s 80DDB, the tax benefit will then see an increase of 5%, meaning it becomes 15% of the total amount assured in the term insurance. 

One more thing you need to know about tax benefits under section u/s.80C (5) if the owner of the term insurance surrenders the term insurance policy and terminates it within 2 years from the date of commencement, then in that the owner is not going to receive any form of tax benefits. 

Term Insurance Tax Benefits under Section 10 (10D)

With term insurance, you get tax benefits not only from Section 80C from ITA, but you will also avail yourself of benefits on the returns that you get in the term insurance under Section 10 (10D). In addition to this, beneficiaries will be given death benefits, or at the end, the maturity amount of the term insurance will get fully exempted, and in this case, there is no upper limit to it. 

The term insurance will also be extended to the maturity amount that is taxable under Section 10 (10D) in case the policy premium exceeds 20% of the actual sum given to the owner of the policy during the policy term. But this is something that isn’t going to happen in most cases. This is because the sum assured in a term insurance policy is higher than the yearly premium. 

Term Insurance Tax Benefits On Riders

There are a number of term plan riders that insurance company offers to their customers to give them additional coverage. But the advantages are not restricted to strengthening your term insurance in addition to the main features. 

Based on the rider and the owner of the insurance policy choices, you need to follow certain conditions. You can go for the additional tax benefits on your term insurance, or you can go for extra term plan benefits. Given below, we have mentioned both of them for your ease of understanding. 

You can add a critical illness rider on your term insurance to make yourself eligible for tax deductions under u/x 80D.

Apart from this, if you avail riders such as TROP or similar to it, you will be increasing the amount you have to pay for the premium. This enables you to save money under the Section u/s 80C. Keep in mind you can avail of these optional riders at the start of the term insurance tenure, or you could have them as an add-on in mid-tenure of your term insurance as well. In both ways, the conditions and the benefits will remain the same. 

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Wrapping Up

So these were the few methods by which term insurance can save your income tax and saves you Rs 1.5 lacs a year. Term insurance is a great way to keep your money for the future, so if you are thinking about investing your money in it, then we say why wait and invest now to get the best possible term on your insurance with maximum benefits.