Tax Benefits of Life and Health Insurance Policies

What if securing your future also helped you save taxes?

Amit is a software engineer from Pune. A year back, Amit purchased a health insurance cover for ₹15,000 and a term insurance cover for ₹20,000. 

He never expected these policies to give him more than protection, but then he learned about the tax savings!

Amit found out that, as per Section 80C, the ₹20,000 he paid for life insurance could be deducted from his taxable income, saving him money on taxes. His premium of ₹15,000 for health insurance is also tax-deductible under Section 80D.

This implies that all these deductions combined reduced Amit's taxable income by ₹35,000, which saved Amit ₹7,000 in taxes.

And if something goes wrong, the claim under both policies would be tax-free.

Let us understand why "Bima" is not only a safe but also a good investment.

Why "Bima" is Your Best Bet – Beyond Just Protection

Insurance is not only about protecting your family — it's also a good tax-saving strategy. Think of a raincoat – it protects you from rain and keeps you dry! Life and health insurance are similar; they protect your family and help you save!

For example, Pooja is a marketing executive from Mumbai. She paid ₹22,000 for life and ₹12,000 for health insurance this year. Here's the outcome:

Pooja paid ₹34,000 to cover both the policies and saved ₹6,800 in taxes. Further, if she ever claims, the amounts will be tax-free.

Section 80C: Shahenshah of Tax Deductions for Life Insurance

When it comes to tax saving, Section 80C comes to the rescue! It lets you claim deductions for life insurance, ULIPs, and child insurance plans — up to ₹1,50,000 a year.

Read More -  The Role of Health Insurance
 

But there's a small rule: your premium must not exceed 10% of the sum assured (in the case of policies purchased after April 1, 2012). If that happens, you won't get the full deduction.

For example, Neelam, a 40-year-old teacher from Pune, pays ₹40,000 annually for her life insurance, and the sum assured is ₹4,00,000. As ₹40,000 is 10% of ₹4,00,000, she is eligible for the entire deduction under Section 80C.

If Neelam is in the 20% tax bracket, she will save ₹8,000 (₹40,000 × 20%) on her taxes.

Section 80D: Your Health Bills Deserve a Break Too

Medical bills can be a heavy burden, but Section 80D gives you some relief by allowing tax savings on health insurance premiums for yourself and your family.

Here’s a quick look at the deductions:

If you're paying for your senior citizen parents' health insurance, you can save up to ₹75,000!

For example, Vikas is a 45-year-old software developer from Bangalore. He pays:

• ₹20,000 for his health insurance.
• ₹30,000 for his 65-year-old mother’s health insurance.

Here’s how his deductions look:

Total Tax Saved = ₹25,000 (for self) + ₹50,000 (for parents) = ₹75,000

If Vikas also does a preventive health check-up, he can claim an extra ₹5,000 (this is included in the above limits).

School Fees Se Pehle, Tax Ki Bachat Pakki: Tax Benefits of Child Plans

Child insurance isn’t just about saving for school fees or future goals — it also helps you save on taxes today. 

Also Read - Smart Tax-Saving Strategies
 

Plans like LIC’s New Children’s Money Back Plan or HDFC Life YoungStar Udaan are fully covered under Section 80C.

Even if the policy is in your child’s name, you (as the parent paying the premium) get the tax benefit. 

And when the plan matures? The money received is tax-free under Section 10(10D).

For example, Renu, a 33-year-old mother from Jaipur, took a child plan for her 5-year-old son, Arjun.

• She pays ₹60,000 every year for the policy.
• The policy gives a sum assured of ₹6,00,000, so her premium is within the allowed limit (10%).
• She claims the full ₹60,000 as a tax deduction under Section 80C.
• And when Arjun turns 18, the maturity amount will be tax-free.

So, Renu is building a safe future for Arjun and saving on tax every year — a total win!

EMI Se EMI Tak: Jab Insurance Premiums Bhi Debt Plan Ka Hissa Bane

Debt consolidation allows you to combine all loans into a single one at a lower rate of interest, thus reducing the EMI burden.

But what if it could also help you save tax?

Well, it can — if you’ve used part of your consolidated loan to pay life or health insurance premiums. Here’s when it works:

• The policy is in your or your family’s name
• The premium is paid from your account
• The loan is not taken against the policy (no secured loan)

For example, Sneha was juggling multiple EMIs — a personal loan, credit card dues, and a pending health insurance premium. 

She was missing out on tax benefits simply because she couldn’t pay the premium on time.

So, she took one smart step: debt consolidation.

Before Consolidation

Premium unpaid = No 80D tax benefit

After Consolidation

By consolidating, Sneha reduced her EMI stress and unlocked a sweet tax saving.

Conclusion

Life and health insurance policies don’t just protect you; they also help reduce your tax bill. With the right choices, you get both safety and savings—what’s better than that?

FAQs

• Can I claim tax benefits if I bought insurance online?

Yes! Whether online or offline, you’re eligible for tax deductions.

• Can I claim deductions if the policy has lapsed?

No. Only active premiums paid in the same financial year qualify.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?