Tax Treatment Of Single Premium Life Insurance
Rahul didn’t want to be bothered about remembering when his life insurance premium payments are due, so his friend suggested that he go for the single premium route. Now, a single premium policy, as the name suggests, offers a one-time payment solution, where premium gets paid just once in the entire policy term. If Rahul buys a policy of 10 years, he would be covered for the 10 years, even though he has paid premium in the first year only. While this seemed like a good idea, Rahul’s main concern was the tax benefits he could avail – would he be able to claim the same benefits as the regular premium policies?
Tax benefits under Section 80C and 10(10D)
In case of life insurance policies, tax benefits can be claimed under Section 80C and 10(10D) of the Income Tax Act, however, this is only applicable when certain conditions are met. Premiums for a life insurance policy (issued on or after April 1, 2012) qualify for deduction under Section 80C, up to a maximum of ₹1,50,000 a year. If the premium is greater than 10% of the sum assured, the deduction allowed will be 10% of the sum assured. Deduction cannot be claimed for the premium amount paid in excess of this. Another essential point to be noted concerning such policies is that you will be eligible for a one-time tax benefit (under Section 80C) since you will be paying the premium at a single time only.
As per Section 10(10D), maturity proceeds for life insurance plans purchased on or after April 1, 2012 shall be exempt from tax if the annual premium paid is not more than 10% of the sum assured. The maturity proceeds from the single premium policies will only be exempt from tax if the minimum sum assured throughout the policy period is at least 10 times the single premium paid. Single premium policies are sometimes at a disadvantage because their sum assured is low. When you're looking to buy a single premium life insurance policy, make sure you consider those plans with the right amount of life cover, especially if you want to enjoy the tax benefits.
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