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Tax Benefits and Refund Details About Term Insurance

Author: Tanuja Koshy
by Tanuja Koshy
Posted: Nov 14, 2019
term insurance

Not taking vaccinations for certain diseases, might not cause a lot of problems. However, it leaves you vulnerable to the disease and you will constantly have the fear of the same. Buying a term life insurance is similar to taking vaccinations. There is no harm in not buying one. But the ones who do buy a term plan, have complete peace of mind when it comes to the financials of their loved ones in the future.

Term insurance plans being the purest form of insurance, ensure that your loved ones continue to lead the same life that you always wanted them to, even in your absence. Should the worst take place, the insurance company will provide the sum assured to the nominees of the policy.

This will help them to not only look after immediate finances but also take care of long-term goals.

However, there is a bit more to a term insurance plan than just providing the highest life cover at incredibly low prices. Term insurance plans come with multiple tax benefits, of which we will learn now.

Section 80C

Under Section 80C, the Income Tax Act of 1961 allows taxpayers to deduct an amount up to INR 1,50,000 for a fiscal year if they were to make investments under certain heads. And insurance is one such category. Any investment towards life insurance plans allows you to avail of this benefit. A term insurance plan is a pure insurance plan, qualifies for these benefits as well.

In other words, the premiums that you pay towards your term insurance plan will help you reduce your tax liability. The premium amount is tax-deductible under Section 80C. The benefit is available for you, your spouse and even your children. But there are a few conditions that you must be aware of.

  • If you bought your term insurance policy on or after the 1st of April 2012, the premium of the policy is tax-deductible only up to a maximum of 10% of the sum assured.
  • If you bought your term insurance policy on or after the 31st of March 2012, the premium of the policy is tax-deductible only up to a maximum of 20% of the sum assured.
  • If you bought your term insurance policy on or after the 1st of April 2013 and are suffering from illness or any form of disability, the tax deduction is applicable up to a maximum of 15% of the sum assured.
  • As already mentioned, there are various heads under which you can invest to avail benefits of Section 80C. If you have a term insurance plan, you can still invest in other avenues to make the most of Section 80C.

    Section 10(10D)

    Section 10(10D) of the Income Tax Act of 1961, simply offers tax exemptions on the proceeds of an insurance plan. According to the Act, if nominees of policy were to receive any proceeds from a term insurance plan, the amount is non-taxable. Should the nominees receive the sum assured as a death benefit of a term plan, they do not have to pay any taxes on the same. And the no taxation clause holds good even if they receive the funds in India or any other country.

    Yet, there are a few conditions where this Section might not be valid. This includes:

  • If the nominees receive any funds under Keyman Insurance Policy.
  • For all the policies purchased on or after the 1st of April 2012, the tax exemption is applicable only if the yearly premiums do not exceed 10% of the sum assured of the policy.
  • If the nominees receive any amounts under Sections 80DD (3) or 80DDA (3).
  • For all the policies purchased between the 1st of April 2003 and 31st of March 2012, the tax exemption is applicable only if the yearly premiums do not exceed 20% of the sum assured of the policy.

    Section 80D

    This section allows for tax benefits on the premiums paid towards health insurance plans. One might wonder, how is this relevant to a term insurance plan. A few term insurance plans have inbuilt cover for critical illness, hospital care, surgical care, etc. You can even opt for these covers as riders to your policy. In such cases, you can avail of deductions up to INR 25,000 annually. And an additional INR 25,000 exemption if you have policies for your parents.

    Refunds

    To ensure that buying insurance policies are customer-friendly, the IRDAI has included certain measures. One of these allows policy buyers to have a free-look period. The free look in the period ranges from 15 to 30 days. And within this duration, you have all the rights to cancel the policy, if you are not happy with it. In such a case, the insurer will refund the entire premium amount to you, barring any medical tests that you might have undergone.

    About the Author

    I am Tanuja Koshy working with one of the leading online insurance aggregators as a General Manager. I manage and drive online investments, short term and long term insurance like home insurance, travel insurance, health insurance, term insurance.

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    Author: Tanuja Koshy

    Tanuja Koshy

    India

    Member since: Nov 11, 2019
    Published articles: 2

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