Here is the complete breakdown of insurance policies that qualify for tax exemptions, categorized by the sections of the Income Tax Act:
1. Life Insurance Policies (Section 80C)
You can claim a deduction of up to ₹1,50,000 per financial year for premiums paid toward life insurance policies for yourself, your spouse, and your children.
Term Insurance Plans: Pure risk protection policies with no maturity value. They offer the highest cover for the lowest premium.
Endowment & Money-Back Plans:
Traditional savings-cum-protection plans (like LIC Jeevan Labh or similar plans from private insurers) that pay out a lump sum or regular intervals.
Unit Linked Insurance Plans (ULIPs):
Market-linked investment plans that combine life insurance with mutual-fund-like returns.
Pension/Annuity Plans (Section 80CCC):
Premiums paid for retirement plans from life insurance companies fall under this umbrella (sharing the same overall ₹1.5 lakh limit).
Crucial Rule for Life Insurance:
To claim the 80C deduction and ensure the maturity amount remains tax-free under Section 10(10D), the annual premium must not exceed 10% of the Sum Assured. Additionally, for ULIPs issued after February 1, 2021, maturity proceeds are taxable as capital gains if the total annual premium exceeds ₹2.5 lakh. For other life insurance policies issued after April 1, 2023, the maturity proceeds become taxable if the total annual premium exceeds ₹5 lakh.
2. Health Insurance Policies (Section 80D)
Deductions under Section 80D are over and above the ₹1.5 lakh limit of Section 80C. You can claim deductions for premiums paid for yourself, your spouse, dependent children, and parents.
| Covered Individuals | Age Criteria | Maximum Deduction Allowed | ||
| Self, Spouse & Dependent Children | All under 60 years | ₹. 25,000 | ||
| Self, Spouse & Dependent Children | If any member is a Senior Citizen (60+) | ₹. 50,000 | ||
| Parents | Parents under 60 years | ₹. 25,000 (Additional) | ||
| Parents | Parents over 60 years (Senior Citizens) | ₹. 50,000 (Additional) | ||
Total Potential Savings:
If both you and your parents are senior citizens, you can claim up to ₹. 1,00,000 (₹. 50,000 + ₹.50,000). If you are under 60 but your parents are senior citizens, you can claim up to ₹. 75,000 (₹. 25,000 + ₹. 50,000).
Health Riders:
If you add a Critical Illness or Surgical Benefit rider to your standard Term Insurance plan, the premium allocated to that rider qualifies under Section 80D instead of 80C.
Preventive Health Check-up:
You can claim up to ₹. 5,000 for routine health check-ups for your family within the overall limits mentioned above. (Interestingly, this is the only health expense allowed to be paid in cash; insurance premiums must be paid digitally or via cheque to claim deductions).
Senior Citizen Medical Expenses:
If your senior citizen parents do not have health insurance (due to age or pre-existing illnesses), you can claim their actual medical expenses (doctor fees, pharmacy bills, hospital costs) up to ₹. 50,000, provided bills are paid digitally.
Summary of Tax-Exempt Payouts (Maturity & Claims)
It isn't just the premium that saves you money; the payouts from these policies are heavily tax-sheltered too:
Death Benefits:
Any lump sum received by a nominee upon the policyholder’s death is 100% tax-free under Section 10(10D) for life insurance, and completely tax-exempt for health insurance claims.
Maturity Proceeds:
Tax-free under Section 10(10D) as long as your policies stay within the premium-to-sum-assured ratios (₹. 10\%₹) and the annual premium caps (₹. 2.5 lakh for ULIPs / ₹. 5 lakh for traditional plans).
