Term Insurance and Tax Savings: A Simple Guide         

Pune, 24 April 2025: Term insurance is one of the simplest and most affordable ways to secure your family’s financial future. It provides a life cover for a fixed period, meaning your loved ones receive a payout if something happens to you. Along with financial protection, term insurance 80C benefits help in saving taxes. The premiums paid qualify for deductions under Section 80C of the Income Tax Act, reducing taxable income. Additionally, the death benefit is tax-free under Section 10(10D). Understanding the tax benefits of term insurance allows for smarter financial decisions while ensuring long-term security for your family.

Understanding Term Insurance

A term insurance policy is a simple life cover that provides financial protection for a set period. If the policyholder passes away during this time, the nominee receives a payout. Since term plans do not have maturity benefits, they are one of the most cost-effective life insurance options.

But besides offering security, the premiums paid for term insurance are eligible for tax deductions under Section 80C, helping you lower your taxable income.

Tax Benefits of Term Insurance

Term insurance not only provides financial security for your family but also offers significant tax benefits, making it a smart addition to your financial plan.

1. Save Taxes Under Section 80C

The most significant tax benefits of term insurance plan falls under Section 80C of the Income Tax Act.

• You can claim a deduction of up to Rs.1.5 lakh annually on the premium paid for your term insurance policy.
• The deduction applies to premiums paid for policies covering self, spouse, or children.
• This exemption also includes other tax-saving instruments like PPF, ELSS, and tax-saving fixed deposits.
• However, this Rs.1.5 lakh limit includes all other eligible tax-saving instruments such as PPF, ELSS, and tax-saving fixed deposits.

Thus, if you’re looking for a reliable way to secure your family’s financial future while reducing taxable income, a term insurance policy under Section 80C is a great choice.

2. Additional Savings with Section 80D

Many people believe that critical illness or health-related riders under term insurance qualify for tax benefits under Section 80D. However, Section 80D applies only to standalone health insurance policies, not riders attached to a term plan.

• You cannot claim tax deductions under Section 80D for health riders added to a term insurance policy.
• However, if you buy a separate health insurance policy, you can claim:
  • 25,000 for self, spouse, and dependent children.
  • 50,000 if the policy includes senior citizen parents.
  • Maximum deduction of Rs.75,000 if both policyholder and parents are senior citizens.

Adding a critical illness rider to your term insurance strengthens financial protection, but it does not qualify for Section 80D benefits.

3. Tax-Free Payouts Under Section 10(10D)

If an unfortunate event occurs, the payout received by the nominee is entirely tax-free under Section 10(10D). This means that the death benefit, irrespective of the amount, is fully exempt from taxation, ensuring your family receives the full financial support they need.

How Term Insurance Helps You Save?

Rohan, a 35-year-old IT professional earning Rs. 15 Lakh per annum, is looking for ways to reduce his taxable income while ensuring financial security for his family.

Without Term Insurance:

• Total Taxable Income: Rs. 15,00,000
• Tax Deduction Under 80C (PPF, ELSS, FD, etc.): Rs. 50,000
• Taxable Amount After Deductions: Rs. 14,50,000
• Tax Payable (Assuming 20% Tax Slab Under Old Regime): Rs. 2,90,000

With Term Insurance – Aviva LifeShield Advantage Plan:

• Total Taxable Income: Rs. 15,00,000
• Term Insurance Premium Paid (Aviva LifeShield Advantage Plan): Rs. 30,000
• Total Tax Deduction Under 80C (Including Term Insurance Premium): Rs. 1,50,000
• Taxable Amount After Deductions: Rs. 13,50,000
• Tax Payable (Assuming 20% Tax Slab Under Old Regime): Rs. 2,84,000

By investing in the Aviva LifeShield Advantage Plan, Rohan reduced his taxable income by Rs. 30,000, leading to an actual tax savings of Rs. 6,000 (20% of Rs. 30,000), not Rs. 9,000. At the same time, he ensured a Rs. 1 crore life cover for his family.

It is important to note that Section 80C tax deductions are only available under the old tax regime. If Rohan opts for the new tax regime, he will not be able to claim these deductions, though he can still benefit from the financial security that a term insurance plan provides.

Why Term Insurance is a Smart Tax-Saving Tool?

• High Coverage at Low Cost: Term plans provide substantial life cover at a minimal premium.
• Dual Benefit of Protection & Tax Saving: You secure your family’s future while reducing taxable income.
• Flexible Add-ons for Extra Benefits: Opt for riders like critical illness cover to extend protection and gain Section 80D benefits.
• Tax-Free Payouts: Death benefits are 100% tax-exempt under Section 10(10D).

Choosing the Right Term Insurance Plan

When selecting a term insurance plan, consider the following:

• Adequate Coverage: Ensure your sum assured is at least 10-15 times your annual income.
• Premium Affordability: Compare premium amounts and choose a plan that fits your budget.
• Riders for Extra Protection: Consider adding critical illness, accidental death, or waiver of premium riders.
• Claim Settlement Ratio: Opt for insurers with a high claim settlement ratio for a hassle-free experience.

Brands like Aviva India offer tailored term insurance plans that combine comprehensive coverage with tax-saving benefits, making them an excellent choice for securing your future while optimizing taxes.

Secure Your Future & Save Taxes

Investing in a term insurance 80C plan is one of the smartest financial decisions you can make. It ensures that your loved ones remain financially secure in your absence while reducing your taxable income.

By using the tax benefits of term insurance under Sections 80C, 80D, and 10(10D), you can create a well-rounded financial strategy that balances protection with savings.

So, why wait? Take control of your financial future today with the right term insurance plan and enjoy long-term peace of mind!

FAQs

1. Can I claim tax benefits on term insurance if I don’t have a health rider?

Yes, even without a health rider, you can claim tax benefits under Section 80C for your term insurance premiums.

2. How much tax can I save with term insurance?

You can save up to Rs.1.5 lakh annually under Section 80C. However, this limit includes all eligible tax-saving investments, such as PPF and ELSS.

3. Is the death benefit from term insurance taxable?

No, the death benefit received by the nominee is 100% tax-free under Section 10(10D).

*Standard T&C Apply

**Tax benefits are subject to change in prevalent tax laws.

***Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

****Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.