Health Insurance or Term Insurance- Which One Offers a Better Tax Benefit?

Health Insurance VS Term Insurance

Health Insurance VS Term Insurance

Did you ever think that buying insurance can give back returns? Fancy, right? Well, when you buy a Health Insurance or Term Insurance policy, you get a combo of both, financial backing and tax deductions associated with them.

Health Insurance or Term Insurance

Let’s begin with Health Insurance!

The premiums you’d pay towards a Health Insurance Policy would fall under Section 80D of the Income Tax Act.

How does it work and how much of a benefit can you get back?

SituationDeductions (80D)
Self and Family (< 60 years)Rs. 25,000
Self and Family + Parents (< 60 years)Rs. 25,000 + Rs. 25,000 = Rs. 50,000
Self and Family (< 60 years) + Senior CitizensRs. 25,000 + Rs. 50,000 = Rs. 75,000
Self and Family (at least one member > 60 years + Senior CitizensRs. 50,000 + Rs. 50,000 = Rs. 1,00,000

Can Senior Citizens get a Tax Benefit on their Health Insurance? ABSOLUTELY, yes!

Premiums imposed on Health Insurance policies for Senior Citizens are always considerably higher than normal.


Virat is 49 years old and pays a premium of Rs 24,000 for his Health Insurance Policy. Apart from it, he also bears the expense of a premium for the medical insurance policy of Rs 43,000 for his mother who is 73 years old.

Let’s see what tax deduction can Virat get under section 80D of the Income Tax Act.

Premium PaidActuals (Rs)Limit Under 80D (Rs)
For Self24,00025,000
For his Mother43,00050,000

Virat can claim a tax deduction for the entire amount of Rs. 67,000 paid towards the premium of both the policies, as his total premium amount paid is lower than the limit of Rs. 75,000.

Okay, so what about the taxable income now?

Let’s assume Virat’s annual gross income is Rs. 7,00,000.

(-) Permissible Tax Deduction under Section 80D is Rs. 67,000.

Therefore, Virat’s Taxable Income is now Rs. 6,33,000.

The Budget of 2018 came in with a lot of relief for senior citizens who were either unable to get a health insurance policy or were paying a massive chunk of their savings to cope up with the premiums of their policies.

Under Section 80D, Senior Citizens are offered benefits on payment of premiums of up to Rs, 50,000. This amount was earlier capped at Rs. 30,000, which sure was a hassle for a few policyholders.

What documents do you need to claim the deduction? And, is it a cumbersome process?

It’s not at all cumbersome. The only documents you need to keep by your side are the premium payment receipts and the insurance policy copy which can prove the relation of the family members and their ages.

In the event you are paying for an insurance policy that covers your parents, you should ask for the 80D Certificate from the insurer against providing the details of the payment under your name.

It is only prudent to buy a Term Insurance policy to cover your dependents/ family members, for the days you might not be around anymore to take care of them. It is quite tricky to choose a maturity sum, and not to forget, the premium costs associated with it.

But hey, your term insurance plan can be a pretty good tax-saving machine, just like your health insurance policy!

Term Insurance Plans fall under Section 80C of the Income Tax Act, wherein you can claim a tax deduction of up to Rs. 1.5 lakhs per annum. How cool is that? The cherry on top? It’s not just you who can avail of the tax benefit! Your spouse and dependent children are eligible to claim deductions as well.

As much dazzling as the term plan seems to be, there are a few clauses that can determine your tax rebate filing process. Don’t worry, they aren’t daunting!

  1. If you have bought your term policy on or after April 1st, 2012, you can claim a tax deduction on your total premium amount subject to a maximum of 10% of your sum insured.
  2. If you have bought your term policy on or before March 31st, 2012, you can claim a tax deduction on your total premium amount subject to a maximum of 20% of your sum insured.
  3. If you or your family member are someone who’s suffering from a disability or an illness, then a tax deduction is pertinent subject to 15% or more of the sum insured. This clause is applicable only if your policy has been bought on or after April 1st, 2013.
  4. Apart from everything, members of the Hindu Undivided Family (HUF) can also avail themselves of the benefits based on the above-mentioned clauses.

Note: What is a HUF? HUF stands for Hindu Undivided Family and is a family consisting of all the members directly cascaded from one and only one common ancestor. This also includes their wives and unmarried daughters.

Would your family members be taxed on the maturity amount after you’re gone?

Not at all. Section 10(10D) of the Income Tax Act offers an exemption benefit. Any amount received as part of a death benefit for your term plan or maturity benefit under a money back plan, inclusive of bonuses if any, are exempted from all sorts of taxes.

The amount doesn’t necessarily need to be received from India and can be from anywhere across the globe.  

It doesn’t end here!

You can also claim tax deduction under Section 80D of the Income Tax Act! Yes, you read it right. If your term insurance plan offers add-on cover (if opted for) in the form of riders like Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc., you can avail of the benefits.

Just make sure that the mode of payment towards your premium isn’t in cash. You cannot claim a tax deduction under Section 80D of the Income Tax Act if you choose to pay your premiums in cash. It’s not prohibited to pay in cash per se, but the Income Tax Act disallows tax deductions paid in any mode other than digital payment, cheque, internet banking, draft, and credit card/debit card.

However, cash payments for medical health check-ups are covered and can be claimed for tax deduction under Section 80D against the medical bills for the same.

Let’s consider an example, yeah?

Suppose you paid a total of Rs. 21,000 towards your policy as an insurance premium for the financial year of 2020-21. Let’s say, you have your wife and children covered under this policy. In the policy year, you also got a preventive health checkup which totaled to an amount of Rs. 7,000.

 Now, you can claim a maximum deduction of Rs. 25,000 under Section 80D of the Income Tax Act. Here, Rs. 21,000 will be allowed for your payment towards your insurance premium and only Rs. 4,000 will be allowed out of the total amount you have spent towards your check-ups. Section 80D will dismiss any amount surpassing the threshold of Rs. 25,000.

Too heavy? Let us make both Section 80D and 80C simpler for you.


Section 80C


Section 80D


Section 80C of the Income Tax Act allows tax exemption subject to a maximum of Rs.1.5 lakhs per annum.


Section 80D of the Income Tax Act allows tax exemption not exceeding Rs. 25,000.


You can save an additional tax of Rs.25,000 if you’re the proposer of your parents’ insurance policy and Rs. 50,000 in case your parents are more than 60 years/ senior citizens.


In the run to save lots of funds through claiming for tax deductions, don’t forget that the primary task of a term plan is to take care of your family members financially, in case you don’t happen to be around anymore. Hence, choose the riders wisely or be ready to pay an additional premium for a cover you won’t be needing anyways, just to claim deductions.

In our opinion, choosing either of the insurance policies (Health/Term) can help in claiming tax deductions. Although, Term Plans do seem a better option when it boils down to saving more money.

All in all, it completely depends on what is your requirement and for what purpose do you need insurance at your life stage.

If you’re still at the crossroads trying to figure out if you should go for a Health Insurance Policy or a Term Insurance Policy, try connecting to Ditto Insurance.

Ditto offers free insurance-based consultations, answers your queries, and helps you choose your policy wisely.

About Sashi 561 Articles
Sashi Singh is content contributor and editor at IP. She has an amazing experience in content marketing from last many years. Read her contribution and leave comment.

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