Tax Benefits Available on Life Insurance & Health Insurance under Income Tax Act 1961

In India, life insurance and health insurance are not just tools for financial protection but also provide significant tax-saving opportunities under the Income-tax Act, 1961. Life insurance safeguards the financial security of dependents in case of an unfortunate event, while health insurance ensures coverage against rising medical expenses. To encourage individuals to secure their lives and health, the government offers various tax benefits on premiums paid towards these policies. These benefits not only reduce the tax burden but also promote long-term financial planning and social security.

🛡️ INSURE & SAVE 💰

👉 Life Insurance = Family Protection + Tax Deduction (Sec. 80C)
👉 Health Insurance = Medical Safety + Extra Tax Saving (Sec. 80D)

✅ Protect your family
✅ Secure your health
✅ Reduce your tax burden

🌟 Insurance is not just protection… it’s smart tax planning! 🌟

📌 Income Tax Benefits on Life Insurance

1. Premium Payment – Section 80C

• Deduction Limit: Up to ₹1,50,000 in a financial year (combined with other 80C investments like PPF, EPF, ELSS etc.).
• Who can claim:
  • Individual: For self, spouse, and children (dependent/independent, married/unmarried).
  • HUF: For any member of the HUF.

✅ Eligible Policies:

• Life insurance policies issued by LIC or any other IRDAI-approved insurer.
• Traditional savings plans (Endowment, Money-back, Whole life).
• ULIPs (Unit Linked Insurance Plans).
• Pension/annuity plans (though contributions may also fall under Sec. 80CCC).

⚠️ Conditions on Premium:

• Policy issued before 1 April 2012 → Premium should not exceed 20% of Sum Assured.
• Policy issued on or after 1 April 2012 → Premium should not exceed 10% of Sum Assured.
• For policies issued on/after 1 April 2013 for persons with disability (Sec. 80U) or specified disease (Sec. 80DDB) → Premium limit is 15% of Sum Assured.

👉 If premium exceeds these limits, deduction is restricted and maturity proceeds may be taxable.

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2. Maturity/Survival/Bonus – Section 10(10D)

• Fully Exempt: Any amount received on maturity, bonus, or surrender, if premium ≤ 10% (or 15%/20% as above) of Sum Assured.
• Death Benefit: Always exempt, regardless of premium amount.

❌ Not Eligible for Exemption:

• Keyman Insurance Policies.
• Policies where premium exceeds the percentage of sum assured limit.
• Any sum received under pension/annuity plans (taxable as per rules).

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3. Pension/Annuity Plans – Section 80CCC

• Premium paid towards certain pension plans from LIC/other insurers is eligible for deduction up to ₹1,50,000 (combined with Sec. 80C).
• However, the pension/annuity received later is taxable as income.

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✅ Summary of Benefits

• Premium Paid → Deduction under 80C/80CCC.
• Maturity Proceeds → Exempt u/s 10(10D) (subject to conditions).
• Death Benefit → Always tax-free.

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👉 So, life insurance is not just a protection tool, but also a tax-efficient savings option if policies are chosen wisely.

📌 Income Tax Benefits of Health Insurance

1. Premium Payment – Section 80D

• Deduction allowed on premium paid for:
  • Self
  • Spouse
  • Dependent children
  • Parents (even if they are not dependent)

👉 Maximum deduction = ₹1,00,000 (if both taxpayer and parents are senior citizens).

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2. Preventive Health Check-up

• Included within the above limits.
• Maximum allowed = ₹5,000.
• Can be paid in cash (unlike insurance premium which must be paid in non-cash mode).

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3. Mode of Payment

• Premium must be paid by cheque, draft, credit/debit card, online transfer, UPI, etc.
• ❌ Payment in cash is not allowed for claiming deduction (except preventive check-up).

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4. Eligible Policies

• Mediclaim (hospitalisation) policies for individuals/families.
• Family Floater Health Insurance Plans.
• Senior Citizen Health Insurance Policies.
• Critical Illness Insurance Policies.
• Top-up and Super Top-up Health Insurance.

👉 Must be issued by IRDAI-approved insurers only.

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5. Section 80DD & 80DDB (Special Cases)

• Though not directly “insurance,” tax benefit is also available for:
  • 80DD: Medical treatment of a dependent with disability (₹75,000 to ₹1,25,000 fixed deduction).
  • 80DDB: Treatment of specified diseases (₹40,000 to ₹1,00,000 depending on age).

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✅ Summary

• Health Insurance Premium → Deduction under Section 80D.
• Preventive Health Check-up → Up to ₹5,000 within the 80D limit.
• Senior Citizens get higher benefit (₹50,000).

• Eligible Policies → Mediclaim, Family Floater, Critical Illness, Senior Citizen Plans, Top-up Plans.