How Can You Enhance the Tax Benefits of Your Base Term Insurance Policy? 


Buying online term insurance anytime soon? You must be well-versed with the term insurance meaning to an extent. These are pure life coverage policies that ensure financial security for the family and dependents upon the policyholder’s demise within the policy tenure. The insurance company pays out a sum assured to the nominees of the policyholder under a term insurance policy. No other accompanying benefits (like maturity benefits) are present. Simultaneously, if the policyholder outlives the policy tenure, then there are no payouts from the insurer. Base term insurance policies also offer tax benefits under sections 80C and 10D of the Income Tax Act of 1961.

It is how a base-term insurance policy functions. However, you can always enhance your plan, scaling up its coverage. It is possible through the addition of suitable riders. What are riders? They are add-ons that offer extra coverage for specific incidents or scenarios while ensuring an additional protection layer. At the same time, did you know that you can enhance your base term insurance policy’s tax benefits with riders? Here is a closer look at it in this article. First, however, understanding the tax benefits of a base term insurance plan is essential. 

Tax Benefits Offered by Term Insurance Policies

Some of the tax benefits of term insurance policies include the following: 

  • Section 80C – Policyholders can get tax deductions on their premium payments. The maximum limit is Rs. 1.5 lakh. It also applies to premiums paid for your spouse and children, subject to the total limit. 
  • Section 10 (10D) – It ensures tax exemption for the death benefit paid by the insurance company to the nominee of the policyholder. No taxes are payable on this lump sum amount as per the provisions of this section. 

Now that you know about the core tax benefits of term insurance plans, here is a guide to enhancing the same with the best riders. 

Adding Critical Illness Riders To Term Insurance Policies – Tax Benefits And More 

You can add a critical illness rider while buying offline or  online term insurance. It helps you at multiple levels and not just in getting tax benefits. These riders enable much-needed coverage against the financial impact of medical treatments or hospitalization for treating critical illnesses or potentially-fatal diseases. In a common situation, many people diagnosed with critical illnesses have to contend with insufficient health coverage and dip into their savings. 

It is a situation that is avoidable for the financial health and well-being of the family. Medical emergencies and these illnesses do not come with warnings. Hence, a critical illness rider will ensure additional coverage for the same. Here are some of the benefits of adding a critical illness insurance rider to your term plan: 

  • Coverage for several illnesses, including angioplasty, Alzheimer’s disease, brain surgeries, deafness, cancer, blindness, Parkinson’s disease, and more
  • Lump sum coverage and payout upon the diagnosis of a critical illness 
  • Tax benefits for policyholders under Section 80D. While Section 80D is traditionally for health insurance premiums and coverage, adding such riders to a term insurance policy makes you eligible for these benefits. You can get deductions up to Rs. 25,000 on premium payments, while senior citizens can get up to Rs. 50,000 as deductions per Section 80D. It maximizes your tax benefits, giving you an additional deduction for higher tax savings. 
  • Critical illness riders help make up lost income with lump sum payouts while ensuring that policyholders get the best treatment and care. They do not have to worry about arranging funds for skyrocketing medical expenditures. 
  • The insurance company pays the benefits upon the diagnosis without any minimum survival period or other such clauses in most cases

As can be seen, there are sizable tax deductions available for policyholders with critical illness riders. This contributes to considerable tax savings each year if you combine this with Section 80C deductions. Hence, you can boost the tax benefits of your term policy by smartly choosing these riders. Simultaneously, the importance of these riders is also visible. Critical illnesses can be financially devastating for people and their families. 

They may require frequent hospitalization and pile up medical bills, which existing health insurance may not always be able to cover. Hence, a critical illness rider is the best combination of additional protection and tax benefits. While buying online term insurance and choosing this rider, check out its inclusions and exclusions, including the diseases that have coverage under the same. 



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