Yes. Life insurance policies can be used as a tax planning tool as the policyholder is eligible for tax benefit under the income tax act 1961. There are 2 types of income tax benefits available to policyholders with respect to long term savings made under a life insurance policies:

Deductions:

80c/80ccc:

• The benefit is available to individual assessee and hindu undivided family assessee (huf).
  • In case of individual assessee - himself/herself, spouse, children of such individual
  • In case of huf assessee - any member of huf (under hindu law, huf is a family which consists of all individuals descended from a common ancestor and includes their wives and unmarried daughters)
• If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then thededuction will be allowed only for premiums up to 20% of the sum assured.
• For insurance policies issued on or after april 01 2012, the deduction is allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured. (15% of actual capital sum assured in case of a person with a severe disability or specified ailment).
• Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ulip products after the date of commencement of policy.
• Sec 80cce - maximum amount of deduction that an assessee can Claim under sections 80c, 80ccc will be limited to rs. 150,000.

80D

• The benefit is available to individual assessee and hindu undivided family assessee.
  • In case of individual assessee - himself/herself, spouse, dependent children and parents of such individual
  • In case of huf assessee - any member of huf
• The qualifying amounts under section 80d for self, spouse, and dependent children is up to rs. 15,000/- and additional deduction up to rs. 15,000/- for the parents. However, a higher amount of up to rs. 20,000/- is permitted for parents, if they are senior citizens. The assessee is allowed to make any payment on account of preventive health checkups up to rs. 5,000 within prescribed overall limit.

80DD: Premiums paid for disabled dependent are eligible for deduction up to rs.50,000 every year. A higher deduction of Rs 75,000 shall be allowed, where a dependent is a person with severe disability.

Exemptions

• 10 (10d): Any sum received under a life insurance policy, including the sum allocated by way of Bonus on such policy will be exempt from tax. However, this rule does not apply to following amounts:
  • Sum received under section 80dd(3), or
  • A sum received under a keyman insurance policy, or
  • Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003, and if the premium payable in any of the years during the term of the policy does not exceed 20% of the sum assured. For insurance policies issued on or after april 01 2012, an exemption would be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured (for policies issued on or after 01 april 2013, 15% of actual capital sum assured in case of person with severe disability or specified ailment).