How Tax Deductions On Premiums Differ In Case Of Health And Life Insurance

Posted on: Feb 8, 2022 | | Written by:

How Tax Deductions On Premiums Differ In Case Of Health And Life Insurance

Published on February 11, 2022. EST READ TIME: 3 minutes

Life is not a bed of roses, no matter how well you take care of things. Which is why, planning for emergencies is wise. And that is exactly why you need life and health insurance. But make sure you don’t get confused between the two. While life insurance acts as a safety net for your family when you are not around, health insurance ensures you can easily afford quality healthcare facilities during medical emergencies. Also, you need to know about the difference between the taxdeduction on their premiums. So, read on to know how much you should spend on which insurance. It will help you save money sensibly in the long run.

Tax Benefits on Life and Health Insurance

According to the Income Tax Act, life and health insurance policies fall under different sections that allow for different deductions. If you have opted for the old regime of tax filing, you can save money under both sections 80C and 80D. You can claim tax deductions under section 80C on the payment of premium done for your life insurance policy. And similarly, tax deductions claimed under section 80D is meant for the payment of premium towards your health insurance plan. Let’s understand these one at a time.

Tax Exemption Under Life Insurance

As per section 80C, Income Tax Act, you need to fulfil the primary terms and conditions, and then you can get the tax exemption for paying your life insurance premium. These conditions are:

• Only an individual (resident or non-resident) or a member of Hindu Undivided Family (HUF)can claim the tax benefit.

• Under this section, the maximum amount of deduction available,coupled with life insurance premium, is INR 1,50,000 annually.

• The life insurance plan can be bought for self or your spouse and children.

• The life insurance plan can either be traditional, pure term insurance, or a ULIP (Unit Linked Insurance Plan) plan.

• There is a caveat for ULIP as well as traditional life insurance plans though. Therewill be a reversal of tax exemption claim if the insured surrenders the policy before 5 years and 2 years respectively.

Tax Exemption Under Health Insurance

Health insurance not only gets you cashless treatment, it also gets you tax deduction under section 80D. The conditions are:

• It can be claimed just by an individual or HUF (Hindu undivided Family).

• Only critical illness and Mediclaim plans will get you a tax rebate. Payment of premiums for personal accident plans is not eligible for tax deductions.

• You can opt for central government health schemes.

• A certain portion spent on preventive health check-ups along with the health policy is also eligible for tax deductions.

• The insurance policy can be bought for self, spouse, and dependent children or parents.

• Premium payment should not be done in cash. Only the premium payment towards preventive health check-ups can be done in cash.

Section 80C V/S Section 80D

The key differences between sections 80C and 80D have been highlighted below:

Category	Life Insurance (Section 80C)	Health Insurance (Section 80D)
Coverage given to parents	No cover provided	Cover provided
Coverage given to children	Coverage offered(dependent or not)	Coverage offered(dependent or not) Coverage offered (if dependent)
Maximum deduction limit	INR 1,50,000	INR 25,000 on insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to INR 25,000, if they are less than 60 years of age. If the parents are senior citizens, the deduction amount is INR 50,000. In case both taxpayer and parent(s) are above 60 years, the deduction available under this section will be up to INR 1 lakh, excluding the additional INR 5,000 rebate for a preventive check-up.
Mode of payment	Any mode	Cash allowed only upto INR 5000 for a preventive check-up
Deduction Reversal	Yes, if you surrender the plan	No such provision
Availability of deduction on payment basis	No such provision	Yes

Conclusion

While you probably make these investments at the time of filing for returns, it’s important to know their features and benefits well in advance. And you should always be covered by life and health insurance . These policies can help you and your family to deal with an unfortunate turn of events like death or a medical emergency, without any financial stress. The tax benefits they offer are more reasons to buy these policies today if you haven’t already. You must hope for the best but also prepare for the worst.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

Tax Benefits on Preventive Health Check-Ups

Section 80D - Twin treat of medical cover and tax rebate

Are you aware of these tax benefits of health insurance?