How Term Insurance Can Help You Maximise Tax Benefits Across Different Tax Slabs

Term insurance helps you save on taxes while also securing your family’s future. The premiums you pay can be claimed as tax deductions, and the payout your family receives is completely tax-free. You can get a deduction of up to ₹1.5 lakh under Section 80C (under the old tax regime). Further, the claim amount your nominee receives is also tax-free, as per Section 10(10D). 

If you add health-related riders to your plan, you can get more deductions under Section 80D. This makes term insurance a simple and smart way to manage both your tax savings and your family’s financial protection, no matter what income slab you fall under.

Understand Your Tax Slab First

Before you implement your tax-saving strategy, it’s important to first understand your tax liability. The income tax slab for AY 2024–2025 allows you to choose which bracket to use — the old regime or the new regime. Only the old regime allows tax benefits for term insurance. 

Let’s take a look at the tax brackets under both regimes:

Understanding which regime benefits you more is essential. If you choose the old regime, term insurance becomes a valuable tax-saving tool.

How Term Insurance Offers Tax Advantages

It offers more than protection; it also provides important Term Insurance tax benefits that support smarter financial planning.

1. It Reduces Your Taxable Income Under Section 80C

The most direct way term insurance helps is through deductions under Section 80C of the Income Tax Act. If you're following the old tax regime, premiums paid toward term insurance are eligible for deductions up to ₹1.5 lakh per year. This applies whether the policy is for you, your spouse, or your children.

How this works per slab?

This deduction directly reduces your taxable income, leading to significant savings, especially if you're in the 20% or 30% brackets.

Note: This benefit is available under the old tax regime.

2. It Provides Tax-Free Payouts Under Section 10(10D)

In case of an unfortunate event, the payout made to your nominee is exempt from tax under Section 10(10D). This makes term insurance a powerful estate planning tool as well. It eventually helps your loved one get the necessary financial help without any hassle.

3. It also allows you to plan better from a tax slab standpoint.

Let us see how people across the slabs will benefit through a term plan:

A. Salaried Professionals (Income: ₹5–7.5 lakh)

It is likely that you will fall into the 20% slab. If you opt for a term plan, not only will you get peace of mind that your family is secure, but you will also save ₹30,000 a year in tax. You will effectively get coverage at a reasonable cost, with a tax deduction, without impacting your budget monthly.

B. Mid-Level Earners (Income: ₹10–12.5 lakh)

This group is often juggling EMIs, education costs, and future planning. A term plan allows them to use Section 80C* to full effect, saving up to ₹45,000 and giving peace of mind that loved ones will be protected.

*The tax benefits under this Section are available only under the old tax regime.

C. High Earners (Income: Above ₹15 lakh)

If you're in the highest bracket, a term policy becomes essential, not just as protection but as a long-term tax planning instrument. Additionally, adding riders like critical illness or premium waivers can help you manage financial risks smartly.

Tax Benefits From Riders

While the base term insurance is deducted under Section 80C, specific riders may give you deductions under other sections:

These are easy to miss but can really help you maximise your overall deductions and gain additional protection in your plan.

Use It Strategically, Not Last Minute

The common mistake taxpayers make is rushing into investments at the end of the financial year just to save tax. Instead, if you plan your term insurance early in the year:

• You get lower premiums (especially if you’re young)
• You utilise the full Section 80C benefit over time
• You get time to assess and choose appropriate coverage

Why Term Insurance Works Better Than Other Section 80C Options

Here’s a quick comparison of popular options:

Term insurance is the only Section 80C option that is purely protective in nature. It doesn’t grow your money but ensures that your loved ones are financially covered and your taxes are reduced.

Plans That Support These Benefits

Although this guest post is not promotional, it's important to know that some insurance plans in the market offer:

• Return of premium (refunds all paid premiums if you survive the policy term)
• Flexible payout options (lump sum or monthly income)
• Riders to enhance protection
• Option to choose policy term and premium payment term separately

Axis Max Life Insurance, for instance, offers plans that combine these features while maintaining a Claim Settlement Ratio of 99.70%, providing reliability for long-term financial planning.

Conclusion

Term insurance's real value is not only financial security but also smart tax planning. Depending on the income tax slab, it reduces your tax for AY 2024–25, allowing you to reduce taxable income, receive payouts in a tax-free manner, and claim deductions for health-related riders.

That is how term insurance helps you achieve maximum tax benefits across different tax slabs. Whether starting your career or at its height, a well-chosen term plan gives you peace of mind and a financial dividend.

No VCCircle journalist was involved in the creation/production of this content.