Here we have consolidated a list of frequently asked questions with some that we think should be answered to give you complete perspective on this important benefit of your life insurance policy.
And in case we have still missed out on your query, please do CONTACT US and we would be happy to help you.
Q1: How much tax can I save annually by paying my life insurance premiums?
A1: As per prevailing tax laws, you get tax benefits under section 80C for the life insurance premiums paid. There are different types of instruments available for claiming deductions under section 80C and investments made in a life insurance policy is one of them. The maximum deduction, irrespective of the tax saving instrument(s) chosen, that can be availed under section 80C in a financial year is Rs. 1,50,000. For example, if you are a taxpayer in the 30% taxable income slab you can save tax up to 30% of Rs. 1,50,000 = Rs. 45,000 with appropriate investment in instruments defined under section 80C.
Q2. Do I get tax benefits on all types of life insurance plans or only on term plans?
A2. You get tax benefits on all kinds of life insurance offerings – term plans, money back plans, unit-linked investment plans (ULIP), whole life plans, group life insurance etc. So you can choose a plan as per your requirements and enjoy tax deductions under section 80C on the premiums paid.
Q3. Do I get tax deductions on the premiums paid towards pension plans?
A3. Premiums paid towards pension plansare eligible for deduction under section 80CCC up to a maximum benefit of Rs.1,50,000.
Q4. Can I avail tax benefit, limited to Rs.1,50,000 each under section 80C and section 80CCC?
A4. No, the aggregate tax benefit under Section 80C, 80CCC and 80CCD cannot exceed Rs.1,50,000.
Q5: If I am paying the premiums for life insurance policy taken on the life of a family member or relative, will it be eligible for deduction under section 80C?
A5: You can claim tax deduction under section 80C on the premiums paid for life insurance policy taken on your own life, life of your spouse or life of your child wherein the child may be minor, major, married, unmarried, dependent or independent. Life Insurance premium paid for your parents or any other relative is not eligible for deduction under section 80C.
Q6: Can I pay life insurance premiums as HUF (Hindu Undivided Family)?
A6: If you are a HUF taxpayer, life insurance premium paid on the life of any member of the family is eligible for deduction under section 80C.
Q7: Do I get tax benefits on premiums paid for life insurance policy taken from a private company?
A7: You get tax benefits on the premiums paid for life insurance policy taken from any of the life insurance companies approved by IRDA (Insurance Regulatory and Development Authority of India). You can visit the IRDA website – www.irda.gov.in for the list of approved Life Insurers in India.
Q8. Is repayment of loan taken on one’s life insurance policy eligible for deduction under section 80C?
A8. No. Tax deductions under section 80C can be availed only on the premiums paid towards the life insurance policy and not on loan repayments.
Q9. Can I claim tax deduction under section 80C on the late premium payment fees charged by life insurance companies?
A9. No, fees charged by insurance companies in case of late payment of premium, are not eligible for tax deduction under section 80C.
Q11. I changed the nominee of my life insurance policy for which I paid applicable charges to the life insurance company. Can I claim tax deduction on these charges?
A11. No, fees charged by insurance companies for change of nominee, are not eligible for tax deduction.
Q12: Do I need to pay my life insurance premiums by cheque to claim tax deductions?
A12: No. You can pay your life insurance premiums by cheque, cash or any other mode like credit/debit card, net banking etc. However, for cash payments above Rs.50,000 the PAN number needs to be declared.
Q13. I have contributed additional amounts to my unit linked life insurance plan, over and above the regular premium payable. Can I avail tax deductions on such top up premiums paid?
A13. Yes, however the deduction will be subject to restrictions. For details on restrictions, kindly refer to question 21.
Q14. The life insurance company charges service tax on the premiums paid towards my life insurance policy. Can I avail tax deduction on this service tax paid?
A14. Yes. Service tax paid along with the life insurance premium is eligible for deduction under section 80C.
Q15. Can I claim tax deductions in the current financial year if my premium is due in the current financial year but I make the actual payment in the next financial year?
A15. No. Tax deductions under section 80C can be availed only on the actual premium payments made in the current financial year. For example, if your premium is due on 31st March 2015 but you make the payment on 1st April 2015, then you can claim tax deduction on this payment in the financial year 2015-16 and not in the financial year 2014-15.
Q16. I have paid multiple premiums at one go, will the tax benefit be applicable on this bulk payment?
Q17. Can I claim tax benefit on life insurance premiums paid by taking a loan?
Q18. I have transferred/ assigned my life insurance policy to my parents. Can I still claim tax deduction on the premiums I pay towards this policy?
A18. Transfer or assignment of a policy implies that you have transferred the rights and all benefits receivable under your life insurance policy to another person, in this case your parents. However the life insured, that is you, remains the same. Hence you can continue claiming tax deductions on your life insurance policy.
This is however not applicable in case of a ‘Keyman insurance policy’.
Q19. What are tax implications if I were to terminate my life insurance policy?
A19. If you terminate your life insurance policy within a period of 2 years from the commencement of the policy, then tax deduction claimed on this policy in the earlier year will be considered as your income in the year in which policy is terminated. In case you have a ULIP plan and you terminate your policy within 5 years from the commencement of the policy, then tax deduction claimed on this policy in the earlier years will be considered as your income in the year in which the policy is terminated. To summarise, we can say that the minimum holding period to claim complete tax benefits is 5 years for ULIP plans and 2 years for other life insurance plans. Also you cannot claim any tax benefits on the premiums paid towards a policy in the year in which it is terminated.
Q20. I have taken Loansurance policy wherein the premiums are paid by the bank by increasing my loan amount. In this case who gets the tax benefits on the premiums paid?
A20. As the premium is paid by the bank on your behalf, you get tax benefits on the same.
Q21. Are there any restrictions on the amount of deduction to be claimed?
A21. Deduction is restricted to 20% of actual capital sum assured in respect of policies issued on or before 31st March 2012 and 10% in case of policies issued on or after 1st April 2012. In case of policy taken on or after 1st April 2013 in the name of any person suffering from disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the deduction is restricted to 15% of capital sum assured.
Q22. I have taken a child insurance policy for the benefit of my child, wherein I am the life assured but the premiums are being paid by my father. In this case who gets to claim the tax benefits?
A22. In this case the premiums are being paid by your father for a life insurance policy taken on the life of his child that is you; hence the tax benefit on the premiums paid can only be claimed by your father.
Q23. I am business man and have taken ‘Keyman Insurance Policy’ from a life insurance company. Do I get any tax benefits on the premiums paid towards this investment?
A23. Yes, the amount of premium paid towards ‘Keyman Insurance Policy’ is eligible for tax deduction under section 37(1) of Income Tax Act, 1961.
Please note that the above information is as per existing tax laws which may change from time to time. Hence we urge you to consult your tax advisor for more details.
Also this information should not be construed as expert tax and/or legal opinion from IDBI Federal Life Insurance Company. IDBI Federal Life Insurance Company Limited would not be responsible in any manner for decisions made on the basis of above information.