The term life insurance market in India is expanding rapidly. With increasing financial awareness and higher incomes, more Indians purchase term insurance to secure their families’ financial future. However, many still need to learn about the significant tax benefits of term life insurance. This blog post will provide an informative overview of the various term insurance tax benefit you can utilise in 2024 to save more tax.
What is Term Life Insurance?
Term life insurance is the most fundamental type of life cover that provides financial protection to your family if you pass away during the policy tenure. For example, if you buy a ₹1 crore term plan for 20 years at age 30 and unfortunately passed away at age 40, your nominee would receive the full ₹1 crore death benefit.
Unlike other insurance policies offering maturity benefits, a term plan only covers life. Compared to other forms of life insurance, it is highly affordable. You can customise your coverage by opting for add-on riders. For instance, a critical illness rider can be added to receive an additional payout if diagnosed with a significant illness.
Section 80C Deductions
The premiums paid for term life insurance qualify for tax deductions under Section 80C up to ₹1.5 lakhs annually. This limit applies collectively to all investments made under Section 80C in a financial year, including PPF, EPF, ELSS, NSC, etc. By purchasing an adequate term cover for yourself and your family members, you can optimise the use of the ₹1.5 lakhs limit and save more income tax.
Section 80D Deductions
Besides Section 80C, premiums paid for riders such as Critical Illness, Surgical Care, and other similar covers under term insurance qualify for tax benefits under Section 80D. The maximum deduction limit is ₹25,000 for individuals under 60 and ₹50,000 for senior citizens (aged 60 or above).
Tax-free Death Benefits
Term plans’ most significant tax advantage is that the death benefit payout is entirely tax-free under Section 10(10D).
Maximising Tax Savings in 2024
Given the increasing tax rates and low exemption limits, tax planning must be integral to your financial plan. Term insurance serves the dual benefit of securing your family’s future and saving taxes.
Here are a few steps you can take to maximise savings in 2024:
- Buy adequate term cover for self and family: Premiums paid are eligible for tax breaks under Sec 80C.
- Opt for health-related riders: Critical illness & surgical care riders under term insurance qualify for deductions under Sec 80D, increasing overall tax benefits.
- Increase life cover as income grows: A more considerable premium amount leads to higher tax savings. So, enhance the sum assured as your income and liabilities rise. However, ensuring that the premium amount is affordable and aligns with your overall financial goals and obligations is critical.
Conclusion
By purchasing adequate term cover for yourself and your family and adding suitable riders, you can reduce your annual tax liability by thousands of rupees. Moreover, the death benefit payout is exempt from tax under Section 10(10D). Ensure you maximise all term life insurance tax benefits by paying attention to premium limits, age-based deductions, and rider-related deductions.
