Is the term insurance plan only for covering your life? 

Amit, a 45 year old vibrant businessman, is looking for a term insurance plan to get a better life cover and provide financial security for his family in case of an unforeseen event. But at the same time, he is also concerned about the tax benefits for the premium he pays. Although the other type of insurance investment plans offer tax benefits, does the term insurance plan also provide the same? 

Not only Amit has this question regarding a term insurance plan, but many people at his age who are badly seeking tax benefits have the same doubt. 

With no questions, the term insurance plans certainly provide the tax benefits to the policyholder for the premium he pays. 

Here is a brief about the term insurance tax benefits and types of tax benefits available; 

A Short brief about Term insurance plan

Undeniably, the primary purpose of buying a term insurance plan is to provide a good life cover and financial support to the family in case of the demise of the policyholder, who is the prime income source. However, term plans also offer tax benefits that are covered according to the amount of premium you pay for the insurance policy. If the premium amount is higher, then you get maximum tax benefits. 

These tax benefits may also get influenced by the rider options you choose. This tax benefit can be availed as long as the term plan runs or expires. 

Term Insurance Plan and Tax Benefits

Term life insurance tax benefits primarily help to save on tax. There are various types of deductions and exemptions you can expect to get under different sections of the Income Tax Act. 

The taxpayers have the flexibility to invest in different insurance products to qualify for the exemptions and deductions. Among them, term insurance is one such instrument that a taxpayer can choose. Besides the tax benefit, the policyholder also gets a secured life cover for his family. 

Here are a few key highlights 

· During the term of the policy, every premium that the policyholder pays will get the tax benefit under sections like Section 80C, Section 80D, and Section 10(10D)

· In a term insurance policy, the insurance company promises to pay the sum assured to the nominee in case of any unforeseen happening. This sum assured paid is completely tax-free. 

· The premium paid is eligible for the tax deduction under the relevant section of the Income Tax act. 

Who is eligible for the Tax benefit under a Term insurance plan? 

Like Amit, many people doubt if they are eligible for such term insurance plan tax benefits. Here are a few points to help you understand better: 

· Any individual holding a term insurance policy can claim for tax benefits under this plan 

· He or she can claim for the tax benefit on the premium paid for the term plan bought on self-life, spouse or dependent children 

· Hindu Undivided Families can also claim a tax deduction on the premium amount paid on the life of a family member 

Knowing these benefits before you go for a term insurance plan can help you achieve maximum advantages. 

Term Insurance Plans under Different Sections 

Now after understanding the benefits and advantages of the tax deduction on a term plan, another question that may arise in you is term insurance tax benefits come under which section? 

There are majorly three types of sections under which the tax benefit falls. Here in brief for you: 

1.     Section 80C: This is the Tax deduction under Section 80C of the Income Tax Act, 1961 on a term life insurance plan. This tax benefit can be claimed for the premium paid towards self, spouse, or dependent children, or any Hindu Undivided Family member. However, these tax benefits become eligible for tax deduction only if the policy is issued before March 31, 2012, and the annual premium is up to a maximum of 20% of the sum assured. Perhaps, for the term plan issued on or after April 1, 2012, and for which the annual premium is up to the maximum of 10% of the sum assured is tax-deductible. 

2.     Section 80CCC: Under this section, you can claim your tax benefit for the amount paid towards any annuity plan of any insurance company or LIC of India to receive your pension. Here the maximum deductible tax amount will be Rs. 1, 50,000. 

3.     Section 10(10D): Under this section of income tax benefit, the sum assured amount and the bonus received on the maturity time or surrender of the policy or the death of the policyholder are entirely tax-free when given to the receiver or nominee. 

4.     Section 80D: Under the term insurance tax benefit 80d, the tax deductions can be availed on the premium paid for the term plan. It also indirectly provides term insurance tax benefits. This tax benefit can also be availed even if you have opted for riders, like surgical care cover, critical illness cover, or any other similar riders. Term insurance under 80d helps to get maximum tax savings compared to any different sections. 

Although all sections provide various income tax benefits, identifying the right one that gives you the right solution is crucial. Try to use the online sources to understand income tax benefits available for the term plan more in a better way and choose the right one you want it. You can also consider taking advice from an insurance agent, who may provide you more options that may not be available online. Undoubtedly, now Amit and you can easily buy your term plan with income tax benefits.