How to avail term insurance tax benefits under Section 80C and 80D of Income Tax Act, 1961

Updated: February 02, 2021 10:13 AM

Adding health riders to your term insurance plan brings in the element of security against health and life risks, thus providing a comprehensive protection to your family and finances.

Bajaj Allianz Life Insurance, term insurance tax benefits, Section 80C 80D, Income Tax ActIf you have family members who are financially dependent on you, it is highly recommended to buy life insurance, preferably in the form of a term insurance plan. (Image Credits: Bajaj Allianz Life)

At times, realization of something critical evades us until an emergency strikes. The outbreak of the COVID-19 pandemic is one such occurrence after which the role of life insurance has come to the forefront much more strongly. Many families lost their primary bread-winners, leaving the surviving family members struggling for financial support. If you think youngsters are a safer lot and don’t need life insurance, here’s a fact. The Union Health Ministry had reported that 48.8 per cent* deaths due to COVID-19 are of those below 60 years of age.

It is never too late to course correct. If you have family members who are financially dependent on you, it is highly recommended to buy life insurance, preferably in the form of a term insurance plan.

Before you do so, you must do a proper need-analysis to ascertain your family’s requirements for the future. A term plan will ensure that your family’s financial goals such as children’s education, buying a home do not get derailed in your absence and the surviving members are able to maintain their standard of living.

Term insurance plan

At the onset, let us see what a term insurance plan is and how it helps. A term insurance plan, the simplest form of life insurance, is designed to provide financial protection to the nominees on the occurrence of death of the policyholder/life assured.

While the primary beneficiaries are the nominees in case of death of the policyholder, you can also take term insurance tax benefits while paying the premiums for the policy.

Term insurance plan – Tax benefit U/s Section 80C

Buying a term insurance plan also helps in saving income tax for you. The premium paid towards a term insurance plan qualifies for tax benefit under section 80C of the Income Tax Act, 1961, subject to provisions stated therein.

How section 80C works: The section 80C allows for a deduction of up to Rs 1.5 lakh from gross total income. This deduction can be availed for investments and expenses on some financial products, including life insurance. The premium paid by the policyholder towards a term insurance plan, whether annually or monthly, is one such approved expenditure allowed for deduction under section 80C.

Health risks

While the risk of untimely death gets covered through a term insurance plan, the risk of falling prey to a serious illness too exists during the lifetime. Remember, the death proceeds of a term insurance plan are paid to nominee only in case the policyholder/life assured dies during the term of the policy.

However, what if the policyholder suffers from a critical illness (CI) such as heart attack, cancer, etc. and survives? CI may not only cause a huge dent in one’s finances, but may even reduce the earning capacity of a person.

The treatment cost of CI could be huge and may prolong over a longer period. According to a 2015 FICCI report, treatment of cancer can go up to Rs 20 lakh, Rs 15 lakh for heart attack and Rs 25 lakh for kidney failure or even higher depending on the city and hospital.

Health riders

To cover such health risks, there is better way out using a term insurance policy itself. One can attach health riders such as Critical Illness (CI) Rider and Waiver of Premium Benefit on CI to the base term insurance policy. Riders are add-ons that can be optionally attached to the primary policy by paying an additional premium.

These riders usually are a defined-benefit health insurance plan in which the insurer pays the entire sum insured or part of sum assured depending upon the illness on occurrence of specified illness as per the policy document.

Health riders – Tax benefit U/s Section 80D of Income Tax Act, 1961

The premium paid towards a health insurance plan, which could be in the form of riders in a life insurance plan, qualifies for deduction under section 80D up to Rs 25,000 (Rs 50,000 for senior citizens) in a financial year as per provisions stated therein. Your premium paid receipt will show a break-up of the premium under both section 80C and section 80D.
Section 80C and 80D of Income Tax Act, 1961

Comprehensive protection

Adding health riders to your term insurance plan brings in the element of security against health and life risks, thus providing a comprehensive protection to your family and finances.

While buying life and health protection plans, what also matters is keeping an eye on the track-record of your service-provider. Claim settlement ratio (CSR), is one such indicator that tells you how many claims are approved by an insurance company against the total number of claims received by them. For instance, Bajaj Allianz Life Insurance has a CSR of 98.02** for the financial year 2019-20. The higher the CSR, the better it is for the consumers.

You may choose the Bajaj Allianz Life Smart Protect Goal plan – A Non linked, Non-participating, Pure Life Term Insurance Plan, which is a term insurance plan that can cater to your life insurance needs. Moreover, the additional riders offered along with this policy can also address some of your healthcare expenses concerns, while giving you some tax benefit as an added benefit.

Source:

*https://indianexpress.com/article/india/covid-19-coronavirus-deaths-india-age-6388085/

**As per annual report 2019-20 of Bajaj Allianz Life Insurance

Tax benefits as per prevailing Income tax laws shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

The article is sponsored by Bajaj Allianz Life Insurance

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