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Why Should You Buy Term Insurance Plans in India For Tax-Saving?

  12/27/21 7:08 AM

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It is often believed that the first step for efficient financial planning relies on the ability to save. Considering this, individuals often strive to discover ways in which they can reduce their tax liability. Purchasing suitable life insurance is one of the popular and risk-free ways to save taxes. A Term plan is among the easiest tax-saving instrument to understand.   

Although a term life insurance policy is valuable for tax-saving, it is important to analyse different options to identify which one is the best term life insurance for you. The Indian Income Tax Act allows for numerous deductions and exemptions on the purchase of term insurance policy. However, a crucial element of efficient tax-saving is not making last-minute investments as policyholders often tend to miscalculate their insurance needs.

Take time to explore from among the best term insurance in India to find one that suits your financial and family needs.


What is Term Life Insurance Policy?

Before we enlist the tax-saving benefits of a term insurance policy, it is important to understand what exactly a term plan is. Term life insurance policy provides financial coverage for a specified “term” of years. If the policyholder were to die while the policy is active, a pre-determined death benefit is paid out to the nominee. Owing to a reasonable premium, term insurance is significantly less expensive as compared to investment or savings-based life insurance.         


Tax Benefits of Life Insurance Term Plan

There are several tax benefits that policyholders can avail with the purchase of a life insurance term plan. Both the premiums paid as well as the death benefits are exempted from taxes under the Indian Income Tax Act. Following are the benefits that policyholders can claim during the financial year:

Term Insurance Tax Benefits under Section 80(C) on Term Plan Premiums

According to Section 80(C) of the Indian Income Tax Act, 1961, a taxpayer is eligible for tax exemptions on the term plan premiums paid. The policyholder can claim a tax benefit for up to ₹1.5 lakhs every financial year.

However, there are certain clauses for deductions that insurers need to be aware of:

  • If the term life insurance policy is issued on or after April 1, 2012, then tax deduction benefit is limited to 10% of the sum assured.
  • If the term life insurance policy is issued on or before March 31, 2012, then tax deduction benefit is limited to 20% of the sum assured.
  • In the event of disability, the tax benefit is increased by 15% of the sum assured if a policy has been issued on or after April 1, 2013.
  • If the insurer voluntarily surrenders the term insurance policy within two years, no tax benefit is provided.


Term Insurance Tax Benefits under Section 80(D) on the Term Plan Premiums

This Section primarily allows for tax deductions on health insurance premiums. You can avail of a tax benefit under Section 80(D) if you have opted for health riders such as Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc. By including these riders in the existing policy, insurers can maximise their tax benefit while also getting health insurance cover.

The clauses for deduction include:

  • Tax benefit can be availed for not more than ₹25,000 if the policyholder is under 60 years of age.
  • A higher benefit of ₹50,000 can be availed by a policyholder above the age of 60.


Term Insurance Tax Benefits under Section 10(10D) on Term Plan Payout

The tax benefits of the term plan are not limited to the premiums paid but also the life cover payouts under Section 10(10D) of the Income Tax Act. The death benefit provided to the beneficiaries is entirely exempted from taxes.

Here are some clauses to remember:

  • If the policy premium exceeds 20% of the actual sum assured, then the maturity amount is taxable. However, this is unlikely to happen as the sum assured is usually higher than the premium.
  • If a handicapped dependent predeceases the member paying for his medical treatment and maintenance, then such amounts will be treated as income and taxed accordingly.


Important Considerations to Purchase the Best Term Life Insurance 

As term insurance is an income replacement in the absence of the bread-winner, it is important to carefully read the conditions of the term policy prior to purchase. Here are some things you must ask yourself for choosing the best term insurance in India:

  • When to Buy: Marriage or family planning are not the only reasons to buy term life insurance. It is important for anyone who has financial dependents. There is even a provision for buying term insurance for housewife wherein a husband can purchase one for his spouse. Edelweiss Tokio life insurance plan comes with a Better Half Benefit, wherein you can include your spouse in your policy and assure an additional life cover for your spouse when you are no longer around. 
  • The Cover Needed: There are several free tools available on the internet that help insurers calculate the right insurance cover based on their income and expenses. Edelweiss Tokio Life Insurance also offers a free term insurance premium calculator on their website to help you determine your term plan needs. Ideally, individuals should buy a life cover equal to at least 8-10 times the annual income.
  • Insurance Rider: Accidents or disabilities might impact the earning capacity of the policyholder. Riders like Accidental Death and Disability Benefit strengthen a term insurance policy by providing multiple additional benefits, over and above the base sum assured. 
  • Tenure: Insurers need to identify the right tenure of the life insurance term plan. A shorter tenure will lead to you being under-insured. However, a term plan coverage for a longer duration than needed will result in unnecessary term plan premium outflow. Determine the term plan duration based on the age by which most of your liabilities will be done, and you will have no need for income replacement-based insurance plans. 
  • Type of Plan: There are various facilities available under different term insurance plans in India. Insurers should review their needs every five years and make changes to their existing plan accordingly.

The best term plan is one that combines the aforementioned factors to suit the needs of the insurer. 


‘Zindagi Unlimited’ with Edelweiss Tokio Zindagi Plus

The Edelweiss Tokio term plan – Zindagi Plus is carefully curated to protect the financial future of your family and offers a customisable life cover with COVID-19 death claims. Conscious of the uncertainties of life, the Edelweiss Tokio Life Insurance Zindagi Plus plan offers an additional premium waiver on 35 critical illnesses and offers a non-medical underwriting option on life cover up to ₹99,99,000.


To conclude

Term insurance is the most seamless and affordable way of ensuring optimum financial protection for your family in your absence. Along with the extensive life cover, it also offers attractive tax benefits. However, make sure to go through the prevailing tax norms and understand if they apply to your policy before buying term insurance plans in India.

So, buy a term insurance plan from Edelweiss Tokio today, and live ‘Zindagi Unlimited’!

For more information on our life insurance products, contact us today.


Neha Panchal - Financial Content Writer

Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.

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