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LIFE INSURANCE

Tax Benefits On Life Insurance: All You Need to Know

Sumit Asrani Sumit Asrani 02 January 2018
5.0 (3 votes)

Here’s a simple guide to save taxes with life insurance policies. Learn all about life insurance income tax exemptions, while you build a corpus and secure your family.

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Winter has come. And we all look forward to the New Year.

But there’s a worry that’s eating you up in hindsight. Worries over taxes.

Hey, fret not! I can help you in saving taxes.

In one line, get a life insurance policy and avail taxes

Want to know how?

Stay with me. And learn all about…

Tax Benefits on Life Insurance

Life insurance helps you to save taxes in number of ways.

If you have ever wondered:

Are Premiums Paid on Life Insurance Tax Deductible?

Yes, then you are right.

Tax Deductions on Premiums Paid for a Life Insurance Policy under Section 80C

You can avail tax benefits on premiums paid for a life insurance policy. Tax deduction under Section 80C of the Income Tax Act, 1961, allows exemption up to Rs.1.5 lakh per annum.

How can you avail this benefit?

You can claim deductions for premiums paid towards life insurance policies of:

  • Yourself (assesse)
  • Your spouse
  • Your dependent children

Few things to keep in mind about tax exemption in life insurance under Section 80C:

  • Life Insurance issued before 31st March 2012: The tax deduction is applicable only for the total premium amounting to a maximum of 20% of the sum assured.

  • Life Insurance issued on or after 1st April 2012: The tax deduction is applicable only for the total premium amounting to a maximum of 10% of the sum assured.

  • Life Insurance issued on or after 1st April 2013: If life insurance is issued on or after April 1, 2013, in the name of any person suffering from a disability as mentioned in section 80U or suffering from an ailment as referred in section 80DDB, the maximum deduction is up to 15% of the sum assured.

Moreover, a member of the Hindu Undivided Family (HUF) can also avail the above tax benefits under this section.

Tax Deductions on Payouts of a Life Insurance Policy under Section 10(10D)

Life insurance payouts (sum assured/coverage) received as a death benefit to the nominee or on maturity as a survival benefit to the insured, including bonuses if any is exempted from tax under Section 10 (10D) of the Income Tax Act, 1961.

Few things to keep in mind about tax exemption in life insurance under Section 10(10D):

Payouts are not tax exempted under the following cases:

  • Life Insurance issued on or after 1st April 2003 but on or before 31st March 2012: Payouts received are not tax exempted, except as a death benefit, for any policy issued on or after 1st April 2003 but on or before the 31st March 2012.

  • Maximum limit on Life Insurance premiums: If the ‘total premiums paid’ during the policy period are more than 20% of the total sum assured received.

  • Life Insurance issued on or after 1st April 2012: If life insurance policy is issued on or after 1st April 2012 then the exemption is applicable only if the total premium paid doesn't exceed 10% of the sum assured.

  • If you have Keyman Policy: Any payout amount received under the Keyman Insurance Policy*.

  • Life Insurance issued for dependent handicapped or disabled people: Any amount received under Section 80DD (3) or 80DDA (3) is not tax exempted*.

Note:

  1. A Keyman Insurance Policy is a special life insurance policy offered for companies and organization, willing to provide life cover to Key People in their organization. The death benefit under such policies goes to the company.

  2. Under Section 80 DD (3) and 80 DDA (3) if the handicapped dependent dies before the member paying the premium then such amounts will be treated as income and are taxed accordingly.

Tax Deductions on Premiums Paid for Life Insurance under Section 80D

Under Section 80D of the Income Tax Act, 1961 allows tax benefits on health insurance premium. So, if your life insurance plan has health-related inbuilt or add-on cover such as Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc. you can avail tax benefits.

How can you avail this benefit?

You can claim deductions for premiums paid towards health insurance policies of:

  • Yourself (assessee)
  • Your spouse
  • Your dependent children
  • Parents (whether dependent or not)

Few things to keep in mind about tax exemption in life insurance under Section 80D:

  • Maximum limit on premiums: The tax deduction can be only availed for an amount up to Rs.25,000/-

  • Maximum limit on Life Insurance premiums paid for your dependent parents: If you are paying premiums for health insurance policy that’s in your parent’s name, you can avail an additional tax deduction benefit of Rs.25,000/-.

  • Maximum limit on Life Insurance premiums paid for dependent senior citizens: If you are paying premiums for a health insurance plan in your senior citizen parent’s name, you can avail tax benefit on the same to an amount up to Rs.30, 000.

Moreover, a member of the Hindu Undivided Family (HUF) can also avail the above tax benefits under this section. Don’t have life insurance?

Read – Consequences of not having life insurance

Types of Life Insurance to Help You in Saving Taxes

  1. Term Plan – pure risk cover
  2. Unit-linked insurance plan (ULIP) – Insurance + Investment opportunity
  3. Endowment Plan – Insurance + Savings
  4. Money Back – Periodic returns with insurance cover
  5. Whole Life Insurance – Life coverage to the life assured for whole life
  6. Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.
  7. Retirement Plan - Plan your retirement and retire gracefully

For more info, read - Different Types of Life Insurance Policies in India

Let us see how you can buy life insurance and save taxes.

How to Buy Life Insurance to Get Tax Benefits?

  1. You can contact any life insurance agent to buy life insurance as per your needs.
  2. You may contact directly with the life insurance company to opt their offered plans.
  3. You can buy life insurance online – cheaper, affordable, and hassle-free.

Why Buy Life Insurance Online?

  • Instant Policy – You compare, buy, and receive life insurance instantly.
  • Completely transparent – Right from life insurance plan details, premiums, to exclusions, and payout details, everything is transparent. No hidden costs.
  • Low Cost – The low administration and paperwork costs helps insurance company to give at a lower premium.
  • Compare different plans – Before you buy life insurance form any insurance, you can assure yourself about buying the right one by comparing different plans online.
  • Payment – Be a part of Digital India, and purchase online, which completely secure and convenient.

How to Buy Life Insurance Online to save taxes?

The ‘not a good idea’ way:

  1. List down all life insurance companies and different plans offered by them.
  2. Compare plans individually, and then buy the preferred plan.

Or

The ‘easy-peasy’ way:

Take help of the Coverfox’s online insurance comparison tool:

  1. Enter basic details such as the age, gender and annual income of the life assured.
  2. Once you enter the basic required details, the quotes from top insurers will be displayed.
  3. Compare - policy details, quotes, inclusions and exclusions, available riders, etc.
  4. Finalize your plan and insurer, then head to a secured payment gateway and pay the premium amount using Debit card, Credit card, Net banking, etc.

So, buy life insurance to secure your family financially right away.

Think about securing your family and getting tax savings as a cookie. Because, all the premiums paid, and the sum assured received are completely tax exempted under the Section 80C and 10(10D) of Income Tax Act, 1961 respectively.

What are you thinking?

Get a life insurance, before it’s too late.

Save taxes, while you save your family.

I hope this will take away all your worries about saving taxes.

Happy Saving!

Recommended Read: Tax Benefits and Refund Details on Term Insurance

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5.0 (3 votes)
Sumit Asrani
Written by Sumit Asrani
He's a writer. His blood cells are woven with Hypergraphia, as he breathes in books, he exhales words and sneezes poetry. Captivated by the web-of-words he's trying to escape miraculously as a content writer at Coverfox.com.