Key Ways Term Insurance Offers Tax Benefits for Policyholders

The main reason people buy term insurance is to protect their loved ones financially if something happens to them. But there is also a very important practical benefit: the term insurance tax benefit, in addition to the peace of mind it gives you.

The Indian government actively encourages people to get life insurance by giving them many tax breaks and deductions under the Income Tax Act. When you add these up over the years, the money you save is far more than just a one-time thing.

But, like most things in personal finance, the actual value is in knowing how each of these benefits works and how to use them to your advantage.

1. Section 80C: Deductions on Premium Paid

If you’ve purchased a term insurance plan and are paying annual premiums, you can claim deductions up to ₹1.5 lakh per annum under Section 80C. This applies to individual taxpayers and Hindu Undivided Families (HUFs), and you can claim this deduction on policies that you purchase for yourself, your spouse, or your dependent children.

To qualify, however, there’s a small detail you must take into account. The premium must not exceed 10% of the sum assured if the policy was issued after April 1, 2012. That means for a ₹2 crore term insurance plan, your annual premium should not be more than ₹20 lakh to claim the full deduction (which, in most real-world scenarios, it is not the case).

2. Section 10(10D): Tax-Free Payouts for the Family

Next comes the maturity or death benefit that gets paid to the nominee. The Income Tax Act’s Section 10(10D) says that any money received from a term insurance plan is totally tax-free for the person who receives it.

This means that your family won’t have to pay any taxes on the ₹2 crore they get as a death claim. That’s a big help and relief at a time when they’ll probably need it the most.

The exemption applies across all types of life insurance, including pure term plans, as long as:

• The premium doesn’t exceed 10% of the sum assured, and
• The policy isn’t bought under a group scheme where the employer pays the premiums.

3. Section 80D Provides Additional Benefits for Riders

A lesser-known clause in the tax-saving methods is Section 80D. While this section is typically associated with health insurance, it can also be applied to health-related riders in term plans.

If you’ve added a critical illness rider or hospital care rider to your term plan. The premium paid towards this rider can be separately claimed under 80D; up to ₹25,000 for individuals under 60, and ₹50,000 if you’re a senior citizen.

Premium insurance providers like Axis Max Life Insurance often allow customers to customise their plans with multiple such riders, ranging from accidental death and disability to cancer-specific or ICU-based covers.

How to Choose Between The Old vs. New Tax Regimes in 2025

The new tax regime, introduced in 2020 and updated in recent budgets, offers lower tax rates but removes most deductions and exemptions, including those under Section 80C and Section 80D.

So if you’re planning to rely on the term insurance tax benefit, it is only possible under the old regime.

As you can see, the old regime becomes more tax-efficient if you are claiming deductions. And since term insurance is one of the easiest, most disciplined ways to do so, it naturally fits into this model.

For many working professionals who also have home loan EMIs, tuition fees or PF deductions, the old regime may offer higher overall savings if they continue using insurance and investment benefits.

Long-Term Value of High-Cover Plans

A lot of urban salaried professionals in India are opting for 2 crore term insurance covers. The rising cost of living, cost of higher education, ageing parents, and home loan liabilities often add up to a sizable number. In this case, a ₹2 crore cover helps to make sure that your family’s needs are met without lowering their lifestyle choices.

Interestingly, opting for a high cover early in life means your annual premium stays low, yet the tax-saving benefit applies fully year after year. For instance, a 30-year-old paying ₹16,000 annually for a ₹2 crore term plan gets a low premium and also enjoys deductions under Section 80C for the next 30 years.

Choosing the Right Policy with Long-Term Tax Planning in Mind

There’s no one-size-fits-all policy that will likely work for everyone. But when choosing a term insurance plan, especially from a tax benefit point of view, it helps to keep three things in mind.

• Start early: The younger you are, the lower your premium. This keeps your deductible amount fixed and easy to budget for.
• Go big if you can: Higher covers like ₹2 crore not only protect your family better but also make better use of the full ₹1.5 lakh Section 80C limit.
• Don’t ignore riders: They’re more than just add-ons. They often bring in Section 80D benefits and can cushion your finances during major health or accident events.

Conclusion

Most people view insurance as a ‘what if’ product – something they hope they’ll never need to use. But when you factor in the tax benefits, term insurance becomes a smart and usable tool for saving money today while protecting your family for tomorrow.

Over time, the term insurance tax benefit under Sections 80C, 80D, and 10(10D) can offer a mix of annual savings, long-term wealth preservation for your family, and a smoother experience when it matters most.

If you’re looking for versatile and well-structured plans, renowned providers like Axis Max Life Insurance have a lot of possibilities that are both affordable and valuable in the long run.

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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.

Tax benefit is subject to change as per the prevailing tax laws.