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Tax Benefits And Refund Details About Term Insurance


March 10, 2021

By : Bajaj Allianz Life

A term life insurance plan is one of the preferred investment option, since it provides your family with a protective life cover that can help them carry on with meeting their life goals even when you are not around. That said many potential buyers of insurance tend to wonder - "Is term insurance tax free?"

The answer to the question is quite simple. While term insurance itself is not tax-free, it offers plenty of other tax saving benefits under various sections of the Income Tax Act, 1961. If you are wondering what they are, keep reading to find out.


What is term insurance?


Let us quickly look at the concept of term insurance before we delve deep into the various tax saving benefits.

A term insurance plan is a type of a life insurance plan, where an insurer provides you with a life cover for a specified period, in exchange for regular and periodic payments known as premiums paid by the policyholder.

In the event of your death during the policy term, the insurer would pay a certain predetermined sum of money known as the death benefit to your nominees. This death benefit can be used by your nominees as and how they please to satisfy their life goals. The premiums of a term insurance policy usually tends to be much lower than a traditional life insurance policy.

Now that you are well versed with the concept of term insurance, let us explore the tax benefits offered by the plan. A term life insurance plan offers tax saving benefits under three primary sections of the Income Tax Act, 1961 - Section 80C, Section 10(10D), and Section 80D.


1. Benefits under Section 80C of the IT Act


According to the provisions of section 80C of the Income Tax Act, 1961, the premiums that you pay towards a term insurance policy in a financial year can be claimed as a deduction from your total income to the tune of up to Rs. 1.5 lakh, subject to the provisions stated in the said section. This way, you can reduce your total taxable income and thereby, the amount of tax that you would have to pay.

Here is an example to help clear things out –

Assume that you opt for a term insurance policy for a period of 10 years with a death benefit amount of Rs. 1 crore. The amount of premium that you are required to pay can be presumed to be Rs. 12,500 per month. Say your total income for the year comes up to Rs. 12,00,000.

Now, using the provisions of section 80C, you can claim the premiums that you pay for a term insurance policy as deduction. Considering the fact that you pay around Rs. 1.5 lakh as premiums in a year, you can claim the entire amount as deduction, thereby reducing your total taxable income to Rs. 10,50,000 (Rs. 12,00,000 - Rs. 1,50,000). Here, you would have to pay tax only on Rs. 10,50,000 instead of Rs. 12,00,000.

This is how a term life insurance plan helps you save tax.


2. Benefits under Section 10(10D) of the IT Act


Now, under section 10(10D) of the Income Tax Act, 1961, the death benefit that a term life insurance plan offers is completely exempt from taxation in the hands of your nominees. However, this is true only in the case where the amount paid as death benefit is at least 10 times that of the annual premium that you pay towards the plan.

Let us look at an example to better understand the tax benefits offered under this section. Assume that you purchase a term insurance plan with a death benefit of Rs. 10,00,000 for a period of 15 years with a presumed annual premium of Rs. 12,000.

In this case, since the sum assured (Rs. 10,00,000) is more than 10 times of the annual premium (Rs. 12,000), the death benefit is completely exempted from taxation in the hands of your nominees. This allows your nominees to make use of the entire sum assured without putting them under the burden of taxation.


3. Benefits under 80D of the IT Act


Section 80D of the Income Tax Act, 1961 (the Act) allows you to claim the premiums that you pay towards a health insurance plan as deductions from your total income. Although this section does not specify term insurance plans, you can still make use of the section to reduce your overall tax liability. Here is how – If you’ve opted for any health-related riders over and above your base term life insurance, like the critical illness benefit rider, you can claim the premium that you pay for the rider alone as a deduction under section 80D of the Act. In addition to this, as explained above, you can also claim the premium that you pay for your base term insurance plan under section 80C of the Act.


Refund details in term insurance


The Insurance Regulatory and Development Authority (IRDAI) is the regulatory body behind the insurance industry. According to the provisions mandated by the IRDAI, insurance policies are required to offer a free-look period. During this free-look period, if you ever come across certain terms or conditions that you are not comfortable with, you can return the policy to your insurer and claim a refund of the premium that you paid to purchase the said policy, subject to certain deductions.

This free-look period is applicable for term insurance and other life insurance policies as well. IRDAI has set the free-look period to 15 days from the date of purchase of the policy, if you have purchased a term life plan through the online or offline mode. Alternatively, if you have purchased the plan through distance marketing, the free-look period set by the IRDAI is 30 days from the date of purchase of the policy.




With so many tax saving benefits, term life insurance plans are easily one of the most preferred options that you can invest in. If you are engaging in tax planning, you may consider including term insurance as a part of your portfolio.


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2Above illustration is considering Male aged 25 years | Non-Smoker | Life Cover Variant | Policy term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | medical rates | Annual Premium Payment Mode | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only.

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.