Tax Benefits of Term Insurance

Tax benefits of term insurance allow policyholders to save on taxes through deductions under Section 80C and 80D. Know the tax benefits of term insurance, how to claim, and exclusions.
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Tax Benefits under Term Insurance
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3 min
28-June-2025

Term insurance not only secures your family financially but also offers valuable tax-saving advantages. From reducing your taxable income on premiums paid to ensuring tax-exempt payouts for your loved ones, it plays a key role in smart financial planning. Let’s explore the key tax benefits of term insurance and how they can help you optimise your overall tax savings.


What is term insurance?


Term insurance is a type of life insurance that provides coverage for a specific period, usually ranging from 5 to 30 years. It ensures financial security for the policyholder’s family in case of an untimely demise. Term insurance policies are affordable and offer high coverage at low premiums. Additionally, they provide tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. Some plans also come with riders like critical illness or accidental death benefits, enhancing the overall protection. With different types of term insurance available, individuals can select a plan that best suits their financial needs and future goals.
 

Benefits of term insurance


Term insurance tax benefits make your financial planning more efficient by helping you reduce taxable income while securing your family’s future with affordable premiums, tax-free payouts, and long-term savings advantages. 


  1. Financial security: Term insurance policies offer financial security to the policyholder's family, ensuring that they have a good financial backup during critical times.
  2. Affordable premiums: Term insurance premiums come at relatively affordable premiums when compared to other life insurance policies like endowment and unit-linked insurance plans.
  3. Flexibility: Term insurance policies come with flexible terms and customisable add-on features, allowing policyholders to choose the options that best suit their needs.

 

Term insurance tax benefits under the Income Tax Act, 1961

Term insurance policies are eligible for tax benefits under two sections of the Income Tax Act of India. Here are the tax benefits of term insurance:

 

Tax benefits under section 80C:


Term insurance tax benefits under section 80C allows policyholders to claim a tax deduction of up to Rs. 1.5 lakhs for premiums paid on your term insurance plan under Section 80C of the Income Tax Act. This section also offers deductions for other investments and payments, such as:


  • Public Provident Fund (PPF)
  • Employees' Provident Fund (EPF)
  • Unit Linked Insurance Plans (ULIPs)
  • Equity Linked Savings Schemes (ELSS)
  • Home loan repayments
  • Children's tuition fees
  • Life insurance premiums

Since Section 80C covers multiple investment options, it is important for policyholders to carefully allocate their funds to maximise tax savings. Choosing term insurance under this section ensures both financial security and tax efficiency.

 

Section 80D:


Policyholders can claim deductions on premiums paid for health insurance riders added to term insurance plans. This applies to critical illness and hospitalisation benefits, helping policyholders reduce their taxable income while ensuring comprehensive financial protection.


Under Section 80D, deductions can be claimed for self, spouse, dependent children, and parents. For individuals below 60 years, the deduction limit is Rs. 25,000, while senior citizens can claim up to Rs. 50,000. This term plan tax benefit encourages individuals to opt for health riders along with their term insurance, providing dual protection.

 

Tax benefits under section 10 (10D)


Under Section 10(10D), any amount received from a life insurance policy, including death covers, bonuses, and maturity payouts, is exempt from tax. This exemption applies if the sum assured is at least 10 times the annual premium. This provision encourages individuals to invest in life insurance for long-term financial security.


For policies issued after April 1, 2023, the maturity proceeds are taxable if the total premium paid in a year exceeds Rs. 5 lakh. However, this does not impact the tax-exempt status of death covers, ensuring that nominees receive the full claim amount without deductions.


Additional tax benefits to consider


  • No tax on death covers: The payout received by nominees in case of the policyholder’s demise is completely tax-exempt, making it one of the most important term plan tax benefits for securing your family’s future.
  • Tax-exempt maturity benefits: If conditions under Section 10(10D) are met, policyholders can enjoy tax-exempt maturity proceeds, adding to the overall term plan tax benefits available.
  • Deductions for salaried individuals: Term insurance helps salaried employees reduce taxable income, making it a smart financial tool for tax 80C, making term plan tax benefits a smart and practical tool for tax planning.

By leveraging these term plan tax benefits, policyholders can save more while ensuring financial stability for their loved ones. Proper planning and understanding of tax provisions can help individuals make the most of their term insurance investments.

Term insurance tax benefits: Old vs. new tax regime


When you buy term insurance, you also get term plan tax benefits under the Income Tax Act. But with the shift from the old to the new tax regime, many people wonder which regime offers better advantages for term plan tax benefits. Here's a quick comparison to help you understand.

FeatureOld tax regimeNew tax regime
Section 80C deductionUp to Rs. 1.5 lakh premium deduction allowedNo deduction allowed
Section 10(10D) tax-exempt payoutMaturity/death cover payout remains tax-exemptMaturity/death cover payout remains tax-exempt
Overall tax savingsHigher if you claim deductions (including 80C)Lower, but simpler tax filing

Tax benefits on term insurance riders


Term insurance riders offer additional financial protection and come with term life insurance tax benefits under Section 80D of the Income Tax Act. These riders enhance the coverage of a basic term insurance plan and provide policyholders with security in case of unforeseen events. By including eligible riders, policyholders can get tax benefits of term insurance and reduce their taxable income while ensuring better financial protection.


  • Term insurance riders provide additional coverage and may offer tax benefits under Section 80D of the Income Tax Act.
  • Riders such as critical illness, accidental disability, and hospitalisation benefits qualify for tax deductions.
  • Premiums paid for health-related riders are eligible for deductions up to Rs. 25,000 per year for individuals and Rs. 50,000 for senior citizens.
  • Non-health-related riders like waiver of premium and income benefit riders are not eligible for tax deductions.
  • To avail tax benefits, the premium must be paid via online banking, credit/debit cards, or cheque (cash payments are not accepted).
  • Policyholders must keep premium receipts and payment proofs for tax filing.
  • Claiming deductions on rider premiums helps policyholders reduce their tax liability while securing additional protection.

 

How to claim tax benefits on term insurance under Section 80C?


Claiming tax benefits on your term insurance is simpler than it may seem—once you know what to keep handy and how to report it correctly. If you are already paying premiums, you are just a few steps away from optimising your tax savings. Let’s walk through how you can make the most of these benefits under Section 80C.


Steps to claim tax benefits under Section 80C:


  • Keep your premium receipts and policy documents ready: To claim deductions, you’ll need valid proof of payment such as premium receipts, bank statements, or insurer certificates. These documents act as evidence while filing your income tax return.
  • Check eligibility under Section 80C: Ensure that your term insurance policy qualifies for deduction. Typically, the premium paid should not exceed 10% of the sum assured (for policies issued after April 1, 2012) to be eligible for tax benefits.
  • Include the premium amount in your ITR: While filing your income tax return, declare the premium paid under the Section 80C deduction column. This helps reduce your total taxable income.
  • Submit proofs to your employer (if salaried): If you’re a salaried individual, you can submit your premium receipts to your employer during the financial year to adjust TDS and enjoy immediate tax relief.
  • Stay within the deduction limit: Remember that the total deduction under Section 80C is capped at Rs. 1.5 lakh per financial year, including other eligible investments.

 

Payments eligible for deductions under Section 80C


Understanding which payments qualify for deductions helps you plan better and maximise your tax savings. Term insurance premiums are a key component, but knowing the finer details ensures you don’t miss out on eligible claims. Here’s a closer look at what payments you can include.


Eligible payments under Section 80C:


  • Premiums paid for self, spouse, or children: You can claim deductions for premiums paid towards term insurance policies covering yourself, your spouse, or your dependent children. This makes it easier to plan protection for your entire family while saving taxes.
  • Annual, half-yearly, or monthly premium payments: Regardless of the payment frequency, all premium payments made during the financial year are eligible for deduction, as long as they fall within the prescribed limits.
  • Premiums paid via any valid payment mode: Payments made through online transfers, credit/debit cards, cheques, or other digital methods are all eligible, provided they are traceable and properly documented.
  • Policies purchased from approved insurers: To qualify for tax benefits, the term insurance policy must be purchased from a recognised insurer registered in India.
  • Premiums within the sum assured limit: The premium amount should align with the required percentage of the sum assured to ensure eligibility under tax rules.

By understanding these eligible payments, you can confidently plan your term insurance premiums while making the most of available tax deductions under Section 80C.

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Exclusions under Section 80D of the Income Tax Act


Not all premium payments qualify for tax deductions under Section 80D. Certain exclusions apply to ensure that only health-related premiums receive tax benefits. Policyholders should be aware of these exclusions to avoid incorrect tax claims.


  • Basic term insurance premiums do not qualify under Section 80D; they fall under Section 80C.
  • Non-health-related riders such as waiver of premium and income benefit riders are not eligible.
  • Premiums paid in cash (except for preventive health check-ups) do not qualify for deductions.
  • Group health insurance premiums paid by employers are not eligible for tax deductions.
  • Medical insurance covering overseas treatments does not qualify for Section 80D benefits.
  • GST and service charges on premiums are not included in the deductible amount.
  • Insurance policies covering only personal accident death covers are excluded.

Steps to claim tax benefits for term insurance


Understanding how to claim tax benefits of term insurance is crucial to avoid hassles during tax filing. Here are the steps you can follow:


  • Check eligibility under old regime: If you opt for the old tax regime, ensure your premium payments qualify under Section 80C.
  • Pay premiums through accepted modes: Use cheque, bank transfer, credit/debit card, or net banking. Cash payments above Rs. 50,000 generally don't qualify.
  • Keep documents ready: Maintain receipts of premium payments, policy documents, and insurer-issued statements.
  • File tax returns properly: While filing, declare term insurance premium under Section 80C if you're under the old regime.
  • Declare maturity/death covers: Under Section 10(10D), benefits received are generally exempt. Keep records for future reference.
  • Consult a tax advisor if needed: Tax rules change often; expert advice ensures you maximise tax benefits of term insurance and stay compliant.

 

Conclusion


Term insurance provides essential financial security to policyholders and their families. In addition to offering life cover, term insurance plans come with tax benefits under Sections 80C, 80D, and 10(10D) of the Income Tax Act. Understanding these tax-saving opportunities helps policyholders maximise benefits while ensuring adequate coverage. Selecting the right riders and payment methods is crucial for claiming tax deductions. For those looking to build long-term wealth alongside their protection plan, exploring savings plans can be a valuable addition to your overall financial portfolio. By making informed choices, individuals can enjoy financial protection along with significant tax savings, securing their future and that of their loved ones.
 

Related article:

ULIP taxPostal life insurance tax benefitsTerm life insurance benefits
Term insurance senior citizensTerm insurance for housewifeJoint term life insurance

Frequently asked questions

Is term insurance premium deductible under Section 80C?

Yes, premiums paid for term insurance are eligible for deduction under Section 80C. You can claim up to Rs. 1.5 lakh annually, provided the premium does not exceed the prescribed percentage of the sum assured.

What is the Section 80C benefit on term insurance?

Section 80C allows you to reduce your taxable income by the amount of premium paid towards term insurance. This helps lower your overall tax liability while ensuring financial protection for your family.

Can I claim both 80D and 80C?

Yes, taxpayers can claim both Section 80D and Section 80C tax benefits on their income tax returns. While Section 80D provides deductions on health insurance premiums, Section 80C provides deductions on investments and expenses such as life insurance premiums, PPF contributions, and tuition fees. However, there are limits to the total deduction available under both sections.

What is the maximum tax deduction available under Section 80D for regular taxpayers?

Under Section 80D of the Income Tax Act, ordinary taxpayers can claim a tax deduction of up to Rs. 25,000 for health insurance premiums paid for themselves, spouses, and children. For senior citizens, the deduction limit increases to Rs. 50,000 per financial year.

Can I still avail tax benefits on term insurance after cancelling the policy?

No, tax benefits cannot be claimed if the term insurance policy has been terminated. To retain the deductions under Sections 80C or 80D, the policy must remain active. If discontinued early, the tax deductions availed previously may become taxable.

Do you need to pay tax on term insurance maturity benefits?

In most cases, term insurance plans do not offer maturity benefits. However, if a return-of-premium option exists, the payout may be tax-exempt under Section 10(10D), provided policy conditions and premium limits are met.

Is the payout received by nominees after death taxable?

No, the death cover received by nominees is fully tax-exempt under Section 10(10D). This ensures your family receives the entire sum assured without deductions, offering complete financial support during a difficult time.

Can you still claim tax benefits on term insurance under the new tax regime?

No, deductions under Section 80C, including term insurance premiums, are not available under the new tax regime. To claim these benefits, you must opt for the old tax regime while filing your income tax return.

Is GST on term insurance premiums allowed as a tax deduction?

No, GST paid on term insurance premiums is not eligible for a separate tax deduction. Only the base premium amount qualifies for deduction under Section 80C, subject to the overall limit and conditions.

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