Tax season often brings about questions on how to reduce liabilities without compromising on essential life goals. Many people explore a variety of investment instruments. From equity-linked schemes to fixed deposits, investors want to utilise every tool at their disposal. Yet the benefit of term insurance often remains under-discussed. A term plan can financially protect your loved ones should you predecease while offering 80C deductions to lighten your tax burden.

Mentioned below are 5 facts about term insurance benefits under section 80C you should know.

80C Deductions Allow Up to Rs. 1.5 Lakh in Annual Savings

According to Section 80C of the Income Tax Act, you can apply for a tax deduction of up to Rs. 1.5 lakh per year on specific investments and expenditures. Term insurance fits snugly into this category, meaning the premiums you pay can be subtracted from your taxable income. If someone earns Rs. 10 lakh a year and invests Rs. 1.5 lakh in eligible options (including a term plan), and meets all relevant conditions, their taxable income would effectively drop to Rs. 8.5 lakh.

It is important to note that 80C deductions apply within the broader tax calculation framework.

Yet, the goal isn’t just about tax savings. You’re also safeguarding your family’s future by ensuring that, if something unfortunate happens to you, your loved ones receive financial support to manage their expenses. That’s the deeper benefit of term insurance: it’s part protection, part peace of mind.

Premiums Paid for Riders Also Qualify

Term insurance doesn’t have to be restricted to basic life cover. A lot of plans let you add optional benefits, sometimes referred to as riders. These riders can address specific concerns like accidental death or term benefits. They cost extra, but they also broaden the policy’s reach significantly. The good news is that premiums paid toward these riders can also be claimed under section 80C deductions as long as they do not allow health-related benefits.

Death Benefit Remains Tax-Free Under Section 10(10D)

(Terms&Conditions Apply)

Term plans are in the lead when it comes to the payout structure. The sum assured—paid to your nominee if you’re no longer around—generally remains tax-exempt under Section 10(10D), subject to specific guidelines. This ensures that your family receives the complete sum without hidden deductions or complicated calculations. 

For instance, if your policy sum assured is Rs. 1 crore, your loved ones should ideally get the entire amount, provided the premiums are within 10% of the sum assured and meet other necessary conditions.

This arrangement is a relief for families already dealing with emotional loss. Instead of worrying over taxes on the payout, they can concentrate on reorganising their finances to handle day-to-day living costs, loan EMIs, or children’s school fees. 

Balancing Tax Benefits with Adequate Cover

A common mistake that people make is focusing solely on the tax-saving angle and overlooking the actual coverage your family might need. This defies the fundamental point of investing in a term plan, keeping your family secure in your absence. Experts usually recommend coverage that’s 10 to 15 times your annual salary. This ensures large obligations, like home loans or children’s higher education, are handled smoothly if you’re not around.

A well-crafted policy should balance your present budget constraints, future responsibilities, and the goal of tax optimisation. If your plan is too modest, you risk leaving your family unprotected. If it’s too large, you might be overpaying for coverage you don’t need. The idea is to strike that middle ground. Companies like Axis Max Life Insurance design flexible options so customers can pick coverage that matches their stage in life, ensuring they don’t neglect either protection or tax savings.

Additional Savings Under Section 80D for Specific Riders

Investors are mostly aware of the tax benefits they get under Section 80C when buying a term plan. But it’s not the only provision that can help lower your tax bill. If your policy has a health-associated rider like a critical illness component, the premium may qualify for deductions under Section 80D. This is typically known for health insurance-related deductions, but it can also extend to riders that focus on serious conditions like cancer, kidney failure, or heart ailments.

A Brief Summary with Only One Use of Bullets

Here’s a short recap for a quick glance:

• Section 80C allows tax deductions up to Rs. 1.5 lakh, which includes premiums for term insurance.
• Death benefits from term insurance are usually tax-free under Section 10(10D), easing worries during hard times.
• Coverage choice shouldn’t revolve solely around taxes. It’s about ensuring the payout is enough for your family’s needs.
• Section 80D may offer more tax relief if you add critical illness riders to your term policy.

Conclusion: Seek the Right Fit

Buying a term plan just to save tax can end up limiting your coverage. The primary objective should be to protect your family in the best way possible and then make the most of the available tax benefits. Look for a reliable insurer known for a smooth claim process and flexible plan options.