Does Term Insurance Come Under Section 80C or 80D? A Complete Guide

At a Glance 

1. Introduction
2. Term Insurance and Section 80C
3. Term Insurance and Section 80D
4. Maximizing Term Insurance Tax Benefits
5. Conclusion: Secure Your Financial Future with Term Insurance

Introduction

One of the greatest benefits of purchasing term insurance is the tax advantage it offers. Before buying a policy, one might wonder “Term insurance comes under which section?" or "Is term insurance covered under 80C?" The answer is, “Yes.” Term insurance comes squarely under Section 80C of the Income Tax Act, for which the policyholders can claim a deduction against the premium paid. 

However, if the policy has riders like Critical Illness or Health Benefit Riders, the premium for these riders can be claimed as deductions under Section 80D. Also, the death benefit that the nominee gets is totally tax-exempt under Section 10(10D), for which the policyholder's family remains financially secure. Being aware of these tax advantages can assist individuals in saving as much as possible while obtaining adequate financial security for the future.

Term Insurance and Section 80C

What is Section 80C?

One of the simplest and most famous term insurance tax benefits available to individual taxpayers and Hindu Undivided Families (HUFs) in India is Section 80C of the Income Tax Act, 1961. It allows for a maximum deduction of up to INR 1.5 lakh during a financial year on prescribed investments and other approved expenses. This benefits the taxpayer as it lowers his or her taxable income while fostering long-term savings and financial well-being. 

Investments in various financial instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and premiums on term insurance are allowed for tax deductions under this section.

Is Term Insurance Covered Under 80C?
This is a type of insurance that secures economic security for the family in case of the unfortunate demise of the insured person. The premiums paid towards a term insurance policy qualify for tax deduction under Section 80C, subject to certain conditions: 

• The policy be taken out in the name of the taxpayer, his spouse, or his children. Policies taken out in the name of parents or siblings do not qualify for this deduction.
   
• Premiums paid should not exceed 10% of the sum assured for policies issued after April 1, 2012. Only if such premium exceeds that limit would the deduction be allowable and restricted to 10% of the sum assured. 
   
• Policies issued before April 1, 2012, will be considered for deduction only in case the premium does not exceed 20% of the sum assured. 
   
• The policy must remain in force for at least two years; if it lapses before that time, tax benefits already availed will be reversed.

Example Calculation for 80C Deduction on Term Insurance
Suppose a person pays a premium of INR 40,000 per year in a term insurance policy. If this is within the INR 1.5 lakh limit given in Section 80C, then he is eligible for the entire INR 40,000 as a deduction in his taxable income. This not only saves him money in the form of reduced tax liability but also ensures his family's financial security.

Other Investments Covered Under Section 80C
There are several other financial instruments and expenses, apart from term insurance, that can be deducted under Section 80C, including:

• Public Provident Fund (PPF): A long-term savings scheme, free of tax under the present law and guaranteed by the government, with a lock-in of 15 years. Section 80C affords deductions to PPF contributions. 
   
• Employees' Provident Fund (EPF): Along with employers, employees contribute to this scheme, which aims to benefit savings for the employees after retirement, under Section 80C.
   
• National Savings Certificate (NSC): A fixed-sum-money scheme with assured returns, qualifies for tax deduction.
   
• 5-Year Fixed Deposit (FD) in Banks: The fixed deposits that are intended for tax saving and are under a mandatory lock-in period of five years are eligible for deduction under Section 80C. 
   
• Equity-Linked Savings Scheme (ELSS): A mutual fund that is used to save taxes with a look-in period of three years and has great chances of high returns along with Section 80C benefits.
   
• Principal Repayment of Home Loan: The principal amount of an EMI for home loans is also subject to deduction under Section 80C, which encourages home ownership by giving tax benefits. 
   
• Tuition Fees for Children: The tuition fees for the education of two children maximum in any recognized institution can avail deduction under section 80C.

Also Read: Best Term Insurance Policies Without Medical Tests in 2025

Maximizing Tax Savings with Section 80C
Taxpayers can strategically capitalize on term insurance tax benefits under Section 80C by investing in a mix of term insurance and other financial products eligible for deduction. By knowing the available alternatives, they can maximize tax savings as well as secure their finances for the future. Prudently planning investments and taking full advantage of the INR 1.5 lakh threshold can sharply lower taxable income and improve overall financial health.

Term Insurance and Section 80D

What is Section 80D?

The Income Tax Act at Section 80D offers tax benefits for the purchase of health insurance policies by individuals. It allows for a deduction of health insurance premiums for the taxpayer, their spouse, children, and parents. The deduction shall also cover some riders related to the health coverage, like Critical Illness Riders and Hospital Care Riders. This section is to incentivize people to secure their health and well-being at tax savings.

How Does Term Insurance Qualify Under Section 80D?

While an ordinary term insurance policy cannot be classified under Section 80D, certain health-related riders acquired with such term plans may provide tax deductions. Such riders include:

• Critical Illness Rider: This rider provides coverage for life-threatening diseases-such as cancer, heart attacks, kidney failures, etc., the premium paid towards it qualifies for deduction under Section 80D.
   
• Hospital Care Rider: If you choose a hospital cash or hospital care rider with your term insurance, the premium for this portion can also be claimed under Section 80D.

Section 80D has the following caps on deductions:

• People below the age of 60 can claim a maximum deduction of INR 25,000 from health insurance premiums (including health riders on term insurance).
   
• Senior citizens (aged above 60 years) would now be allowed a greater deduction of INR 50,000 to meet the higher expenses they incur on health.

Example Calculation for 80D Deduction

Let us think about a situation in which you have subscribed to a term insurance policy charging an annual premium of INR 50,000. Out of this premium, INR 10,000 is attributed to the Critical Illness Rider, and the balance INR 40,000 is for the base term insurance premium. In that case: 

• The INR 10,000 paid by you as premium towards the Critical Illness Rider will entitle you to a deduction under section 80D (subject to the overall limit of INR 25,000 or INR 50,000 for senior citizens).
   
• The rest Rs 40,000 is covered under the term insurance plan under section 80C (within the limit of Rs 1.5 lakh). 

Proper use of Section 80C and Section 80D allows a taxpayer to get the maximum tax savings with the best financial cover possible for himself and his family.

Additional Health Insurance Benefits Under Section 80D

Beyond the riders in term insurance, tax deduction on health insurance policies specifically covering an individual and the family is also conferred under Section 80D. The following are the specifics: 

• Health insurance for family members: The premium paid for the health insurance of self, spouse, children, and parents is eligible for deduction.
   
• Preventive health check-ups: Preventive health check-ups provide a deduction of up to INR 5,000. This is included in the overall limit of INR 25,000 or INR 50,000, respectively.
   
• Higher Deduction for Senior Citizens: An additional deduction of INR 50,000 is available in case health insurance is taken for parents who are senior citizens. This means taxpayers can claim a total deduction of INR 1,00,000 if they cover their senior citizen parents with their health insurance for themselves.

Tax Benefits Under Section 10(10D) for Term Insurance

The next major tax benefit of term insurance is found in Section 10(10D) of the Income Tax Act. This section provides that the death benefit paid to the nominee on the death of the policyholder is completely tax-free. This exemption carries the following key benefits:

• No Ceiling: A taxpayer can claim any amount under Section 10(10D) as tax-free: There is no maximum limit.
   
• Transfer of Wealth without Tax obligations: The total sum assured-includes bonuses-is fully exempt from taxation, making term insurance effective tools for transferring wealth to family members without tax liabilities.

Maximizing Tax Savings with Section 80D and 10(10D)

For the maximum tax advantage, a person may think of acquiring a term insurance policy along with relevant riders qualifying under Section 80D. By realizing the benefits under Section 10(10D), estate planning gets an edge and ensures provision of tax-free financial security for dependents. By judiciously utilizing these provisions, taxpayers are able to work towards increasing the tax-saving on such policies and ensuring their family’s financial well-being.

Maximizing Term Insurance Tax Benefits

Claim under Section 80C - Make certain that your term insurance premiums are claimed under Section 80C.

Claim under Section 80D for Riders - Get yourself a health-related rider for any extra deductions under 80D.

Maintain Policy Tenure - Avoid any early termination of the policy so that the tax benefit is not reversed. 

Ensure Proper Documentation - Ensure to keep the record of payment receipts and other information regarding the policies for hassle-free tax filing.

Conclusion: Secure Your Financial Future with Term Insurance

Understanding the tax benefits of term insurance is of utmost importance for making well-informed financial decisions. The deductions under Section 80C, the extra tax savings through 80D riders, and the taxation-free payouts under 10(10D) make term insurance a great investment to secure your family's future while also enjoying the benefits of taxation. 

Want to explore the best term insurance plans in India? Visit OneAssure and find a policy that fits your needs today.