Top 5 Tax-Savings Term Insurance Plans

Top 5 Tax-Savings Term Insurance Plans

Term insurance plans give you an opportunity to fulfil your responsibility of providing financial security & stability to your family even when you are not around. In addition to that, you can also avail of tax benefits with term insurance plans.

The sum assured provided by the insurer against your term insurance will let you keep your family financially independent and fulfil your financial obligations like your children’s education or payment of a home loan.

Term insurance plans being a great tax-saving tool is an added advantage.

Many people are still unaware of the fact that term insurance plans offer a lot of tax saving benefits, which establish them as one of the most favourable life insurance options available. Let’s have a look into the tax saving benefits available with your Term Life Insurance plans:

Benefits u/s 80C of the Income Tax Act, 1961

Section 80C of the Income Tax Act, 1961 provides a tax exemption of up to Rs.1.5 lakhs per annum on the term insurance plans where you as a policyholder & your spouse or your children as your nominees would be eligible to avail of the tax benefits.

However, there are certain limitations to avail these tax benefits:

  1. If your term plan is issued on or after 1st April 2012, tax deductions would be applicable to the total premium paid by you, valued up to 10% of the maximum sum insured.
  2. If your term plan is issued on or before March 31st 2012, tax deduction would be applicable for the total premium paid by you, valued up to a maximum of 20% of the sum insured.
  3. If you’re suffering from any critical illness or disability, tax deduction would be applicable if you weren’t able to pay premium amounting to 15% or more of the total sum insured. This condition is only applicable if your policy has been issued on or after April 1st, 2013.
  4. A HUF (Hindu Undivided Family) member can also avail of the aforementioned tax benefits under section 80C.

Benefits u/s 10 (10D) of the Income Tax Act, 1961

Section 10 (10D) basically offers the benefit of tax exemption. Under this plan, any amount paid by the insurer as the death benefit is exempted from tax, irrespective of the fact whether this amount is paid from India or any other foreign country.

However, this section doesn’t allow tax benefits in the below-mentioned categories:

  1. Any amount received u/s 80DDA (3) or 80DD (3)
  2. Any amount that has been paid under the Keyman Insurance Plan (It is a term insurance plan availed by an employer or a company on its key person’s life who is currently employed in the company’s business.)
  3. Any amount which is not a part of the death benefit issued on or after April 1st 2003, but on or before March 31st, 2012. In case the total premiums paid during the policy tenure are more than 20% of the total sum assured received, it won’t be applicable for exemption.
  4. In case a term insurance plan is issued on or after April 1st 2012, the exemption would only be applied if the total premium amount paid by you is not more than 10% of the sum assured.

Benefits u/s 80D of the Income Tax Act, 1961

Section 80 D allows tax benefits on the premium paid for health insurance. So, if your term insurance policy has an add-on or inbuilt covers like Surgical Care Rider, Critical Illness Rider or Hospital Care Rider, you can get the benefit of the tax deduction.

This benefit can be availed of by you as the policyholder & your spouse or your children and your parents (whether they’re dependent or not) as your nominees would be eligible to avail of the tax benefits.

However, there are certain conditions you need to take care of to get tax exemptions under section 80D:

  1. The tax exemption is only allowed for an amount not above than Rs. 25,000.
  2. If you have taken the term insurance plan in your parent’s name, you will be able to receive an additional tax exemption of Rs. 25,000/-.
  3. If your parents are senior citizens and you have bought the term plan under their names, you will be eligible for a higher tax benefit of Rs. 50,000.
  4. A HUF member can also avail the aforementioned tax benefits under section 80D.

Here’s a look into the best 5 tax saving term insurance plans that are most sought after by the insurance seekers:

PlanClaim Settlement (%)Premium PaymentSum Assured Maturity Age (Max)
SBI Life eShield96.7%Rs.11,778Rs 35 lakhs – No limit75 years
Birla Sun Life Digi Shield Plan

 

96.4%Rs.11,440Rs.50 lakh – No upper limit80 years
HDFC Life Click2Protect Plus Term Plan

 

97.6%NARs 25 lakhs –  No limit75 years
Aegon Life iTerm 97.1%Rs.10,252Rs 25 lakhs – No limit 100 years
Canara HSBC Life Insurance iSelect93.2%Rs.8,438Rs.50 lakh – No Upper 80 years

Final Thoughts:

In the end, it’s important to understand that buying term insurance merely for the purpose of tax savings purpose is not the right approach. Rather, getting the right cover should be the most important criterion while buying a term insurance plan.

It’s only after getting the right cover that one should think about the tax benefits one will get from it. Again, it is equally crucial to have thorough knowledge and understanding of the tax provisions while filing your ITR (income tax returns) or claiming your tax benefits. As a taxpayer, you should always keep an eye on the amendments introduced by the Income Tax department, from time to time.