Term life insurance offers affordable protection, guaranteeing people can enjoy good coverage. Financial stability is provided to your loved ones at times of need. It functions as a safety net; in addition to this, it offers a death benefit payout should the policyholder experience an unexpected death while the policy remains active. Furthermore, there are several other benefits of term life insurance. For instance, sections 80C and 10 (10D) offer several important tax benefits. Understand the manner in which these tax benefits operate on diverse types of life insurance payments.
Different Types of Tax Benefits for Term Life Insurance in 2025
The tax benefits are applied to the different features and benefits of term life insurance.
On Premium Payment
Term insurance has a tax saving option under the Income Tax Department’s Section 80C. Policyholders can get a deduction of up to Rs. 1.5 lakh on their annual premium payments under this section.
At the same time, this benefit comes with a few conditions.
• The annual premiums paid on your term life insurance should not go over 10% of the sum assured. If the premium does exceed, then the reduction will be applied proportionately.
• The deduction is implemented only if the annual premium does not go over 20% of the assured sum. This applies to policies that are issued before 31st March.
• A policyholder will not get Section 80C’s tax benefits on their premium payments if their policy is terminated or voluntarily surrendered within two years of starting the policy.
On Sum Assured
Individual payouts are performed in term insurance plans, and they play a crucial role in saving tax.
The sum received as a death benefit is exempted under Section 10(10D) of the Income Tax Act. It means that if a nominee gets the death benefit after the policyholder’s passing then no tax gets deducted from that amount. Instead, they get the whole lot in one go.
At the same time, there has been a rise in demand for term life insurance policies where the policyholder gets the maturity benefit of the plan if they survive till then. Even then, the amount is tax-free under the Income Tax Act’s Section 10(10D).
However, one must note that the tax is applicable on the payout received from the insurance plan in these scenarios:
• The benefit was received under a policy where the employer had been both the premium payer and the proposer. The employee is the life to be insured, but the benefit’s claim goes to the employer.
• Benefit received under Section 80 DD(3) or Section 80DDA(3).
Tax Efficiency in Every Section
Now that you know whether your payout is exempt from payout or not, discover the benefits under each section.
• Under Section 80C: The insurance plan gives tax benefits for up to Rs. 1.5 lakh for premiums paid in the same financial year.
• Under Section 80D: Term insurance plans offer health-related riders like surgical care, critical illness, etc., that can benefit from this section. However, some considerations go along with it. For instance, the deduction under this section is only available for Rs. 25,000. The tax benefit can also be received for a policy taken by the parents, and it allows an additional reduction of Rs. 25,000. At the same time, the deduction limit goes up to Rs. 50,000 for senior citizens’ policies.
• Under Section 10(10D): In this section, the maturity benefits of the term insurance plan that have been issued on or after 1st April 2025 get tax deductions if the annual premiums are up to Rs. 5 lakh.
Summing Up
There are many benefits of term life insurance, and tax efficiency is only one of them. Make the most out of your plan by looking up the additional benefits before you get the insurance plan. Ensure that you also estimate the premium you will have to pay beforehand. You can use the term insurance premium calculator to find out how much you need to pay and when you need to pay it.
FAQs
1. Can I claim both 80D and 80C of the tax benefits under a term insurance plan?
Yes, you could claim tax deductions under both sections. But ensure that you meet the requirements for it.
2. Can I get tax benefits if the insurer terminates the policy?
No, you cannot receive the tax benefits if the insurer has terminated your insurance policy. One can get the benefit only if they are still paying the premiums.
3. How can I get the most advantage from the term insurance tax exemption?
You can make the most of this tax exemption by getting proper knowledge through research. You could also invest in a good-term plan that will be suitable for your needs.
