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Term Insurance Tax Benefits & Refund Details: Everything You Need to Know

24-June-2021 |

Term insurance plans are essential to safeguard your family from a financial crisis in the event of your unexpected death. In addition, it provides flexible features to enhance the product benefits to suit your demanding needs. Moreover, did you know that these plans are also a great tax* saving financial tool? It provides tax* deduction and exemption benefits to a considerable extent. Here is a detail about the term insurance tax* benefits and refund details. It will help you invest better and save more. So, let us get started!

 

Term Insurance Tax Deduction Benefits
 

Section 80C

Section 80C of the Income Tax Act, 1961 provides tax* deduction on the taxable income for investments made in financial instruments. Therefore, the premium payments towards term plans qualify for the tax* deduction under Section 80C. The total allowable deductions under Section 80C is ₹1,50,000. It applies when you buy a term policy for yourself, your spouse or your children.

The conditions on term insurance and tax benefits apply to HUF and the members of the HUF as well. 

 

Section 80D

 

Section 80D of the Income Tax Act, 1961 provides tax* deduction benefits on the premium paid for health insurance plans. However, if you have opted for health riders# as part of your term insurance plans, you can avail of tax* deduction benefits under Section 80D of the Income Tax Act.

Health riders# provide additional financial assistance to manage the medical expenses incurred to diagnose critical illnesses, terminal illnesses, etc. It can cover the treatment and hospitalisation expenses. It applies to the term insurance plan for self, spouse, children or parents. For example, the Tata AIA term insurance plan, the Tata AIA Life Insurance InstaProtect Solution, provides the accidental total and permanent disability benefit wherein the insured amount gets payable in an accident that led to a disability.

 

There are a few conditions that apply to this deduction benefit:

  1. The tax* benefit can be applied up to ₹25,000.

  2. If the term plan is for the benefit of your parents, you can avail of an additional deduction of ₹25,000.

  3. Further, if you or your parents are senior citizens, the deduction limit can extend up to ₹50,000.

These benefits are also applicable to members of the HUF.

 

Term Insurance Tax Exemptions Benefits
 

Section 10(10D) of the Income Tax Act, 1961 provides an exemption to the sum received on the term insurance plan while calculating the taxable income. It includes the death benefit your nominee receives and bonuses2 offered by the insurer if any. And, suppose you have opted for the return of premium option, you will receive a refund of the premium amount paid if you survive the policy term. The refund received as a lump sum will also qualify for the tax* exemption benefit.

 

However, for the exemption benefits to be applicable, there are certain conditions that you need to satisfy:

  1. You shouldn't have received an amount under Section 80DD(3) or Section 80DDA(3).

  2. You shouldn't have received an amount under the Keyman Insurance Policy, a life insurance plan purchased by the company or the employer for a key person currently employed in the business.

  3. If the term plan is purchased before 31st March 2012, the premium should not exceed 20% of the total sum assured.

  4. If the term plan is purchased on or after 1st April 2012, the premium should not exceed 10% of the total sum assured.

 

We have seen the tax* benefits provided for these plans. However, for some reason, if you have decided to discontinue the term plan, you can do so during the free look period. Let us understand what it means and how to use the option.

 

 

Term Insurance Refund Process and Details

 

The free look period is a time frame provided by insurance providers for the policyholders to return their refundable term plan and receive a refund. The reasons can be due to a disagreement of the terms and conditions, financially not being stable to afford to pay the premium, found a better choice etc.,

 

If you have decided to return the policy, you should do it within 15 days of the date of receipt of the policy. And, in case if you have purchased the refundable term insurance plan through distance marketing, you have to return it within 30 days of the date of receipt of the policy.

 

Here are the steps to return the purchased term plan and receive the refund:

  1. Inform the insurer about the cancellation of the policy.

  2. Send a letter stating the reason for cancellation and provide the original document of the term policy.

  3. The insurer will initiate a refund and duly send it to your bank account.

However, the refund will be subject to a deduction of the premium amount incurred to cover the period when the term plan is held. Also, the amount spent on medical expenses and other stamp duty charges will be deducted by the insurer.

 

 

Conclusion

 

Term insurance plan is a basic necessity for people who want to secure their family financially in case of their unexpected demise. Term plans are affordable, provide a higher sum assured, and are refundable. In addition, they are eligible for various tax* benefits. We have seen a detail of the applicable terms and conditions. Be aware of such tax* provisions and make the best use of the term plan for extended monetary benefits.


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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimer
  • Tata AIA Life Insurance InstaProtect comprises Tata AIA Life Insurance Sampoorna Raksha Supreme (Non-Linked, Non-Participating, Individual Life Insurance Plan) (UIN: 110N160V02) - Life Option (in case Return of Premium is No) or Life Plus Option (in case of Return of Premium is Yes), Tata AIA Life Insurance Non-Linked Comprehensive Protection Rider (NLCPR) (UIN: 110B033V02) - A Non-linked, Non-participating, Individual Health Rider; Tata AIA Life Insurance Non-Linked Comprehensive Health Rider (NLCPR) (UIN: 110B031V02) - A Non-linked, Non-participating, Individual Health Rider.

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.