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Term Insurance Tax Benefits On Riders


March 12, 2021

By : Bajaj Allianz Life

While it is common knowledge that a term life insurance plan acts as a financial cushion for your family during an adverse event, not many are aware of the various term insurance tax benefits that come along with it. Surprised? Yes, term insurance plans offer several tax benefits to you. That is not all. Even the riders that term plans offer provide you with an avenue to reduce your overall tax liability. Wish to find out more? Then continue reading.


What is term insurance?


A term insurance is a type of a life insurance plan. It offers you a life cover for a specified period in exchange for regular and periodic payments known as premiums.

In the event of your death, the insurance service provider would disburse a predetermined sum of money to your beneficiaries/nominees, known as the death benefit. This sum of money that they receive can then be used to meet their needs and requirements, ensuring that their lifestyle does not take a hit even when you are no longer around.


Term insurance tax benefits


The Income Tax Act, 1961 (the Act) offers a couple of tax benefits to term insurance plans under sections 80C and 10(10D), subject to provisions stated therein. Here is some more information -

1. Section 80C

According to section 80C of the Act, the premiums that you pay during a financial year for a term insurance plan can be deducted from your annual total income up to the tune of Rs. 1.5 lakh. This effectively reduces your total taxable income and in turn decreases your overall tax liability. Let us look at an example –

Assume that you pay around Rs. 8,000 a month for a term insurance plan with a death benefit sum assured amount of Rs. 25 lakhs. The yearly premium that you would have to part with comes up to Rs. 96,000. Now, you can deduct this amount from your total yearly income, which would end up reducing the amount that you would have to pay as tax.

2. Section 10(10D)

Section 10(10D) of the Income Tax Act, 1961, on the other hand, offers a tax exemption on the death benefit paid out to your beneficiaries/ nominees. This effectively means that the sum of money that your beneficiaries/nominees receive from the insurance service provider because of your demise would not amount to income and therefore would not be taxable in their hands.

Thanks to the provisions of section 10(10D), your beneficiaries/ nominees can make full use of the amount that they receive without having to pay any tax on it. That said, in order for the death benefit to be fully exempt from tax, the sum assured amount should be at least ten times more than that of the yearly premium that you pay. Here is a small example that can help you understand the concept better –

Let us say that you opt for a term insurance plan with a death benefit sum assured amount of Rs. 15 lakhs. The yearly term insurance premium that you are required to pay for the plan may be assumed to be Rs. 1,50,000. Since the total sum assured amount is ten times that of the annual premium paid, the death benefit of Rs. 15 lakhs would be totally exempted from tax in the hands of your beneficiaries/ nominees. The entire amount that your beneficiaries/nominees receive can then be used by them to meet their goals and requirements without worrying about tax impact on such receipts.


Term insurance tax benefits on riders


In addition to term insurance plans offering tax benefits, even the riders that you opt for can help you reduce your tax liability. To be precise, section 80D of the Income Tax Act, 1961 allows you to reduce the yearly premiums that you pay towards health insurance policies from your total income for that year. However, this section can be used to your advantage even with term insurance policies.

All that you have to do is opt for a health-based rider such as a critical illness cover or a surgical care cover over and above the base term plan. This would allow you to claim the premium that you pay for the rider as a deduction from your total income. That said, the section imposes a couple of restrictions on the amount of premium that you can claim as a deduction. Let us look at them –

1. If the rider is taken on a plan that is for your parents, who are below the age of 60, the total amount of premium that you can claim as deduction in a year is restricted to Rs. 25,000.

2. If the rider is added to a plan for your parents who are above the age of 60, the total amount of premium that you can claim as deduction in a year goes up to Rs. 50,000.


FAQs on term insurance tax benefits


Here are some frequently asked questions on term insurance tax benefits and the answers to them –

✔ What are term insurance tax benefits?

Term insurance tax benefits by way of deductions reduce your total taxable income, allowing you to bring down your overall tax liability. There are three sections of Income Tax Act, 1961 that offer tax deductions and exemptions - section 80C, section 80D, and section 10(10D).

✔ How to maximize term insurance tax benefits?

To maximize term insurance tax benefits, all that you have to do is make sure that you opt for a term life insurance plan that gives you the possibility of utilizing the benefits under all the three sections of the Income Tax Act, 1961.

✔ Can you make use of term insurance tax benefits even after stopping premium payments?

No. To make full use of the tax benefits, it is necessary for you to continue paying your premiums within the due date. The benefits under section 80C of the Income Tax Act, 1961, are only available for premiums paid during the financial year.




With so many tax benefits for you to enjoy, a term insurance plan is without a doubt one of the preferred options to keep your family financially secure. If you do not have adequate cover, make sure you purchase a term plan and secure your family’s future.


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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.