Insurance · Term Life Insurance
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Life insurance premium is part of the ₹1.5L Section 123, Income-tax Act 2025 (old Sec 80C) pool, but with conditions. Paying premium for a spouse or children's policy: allowed. Premium above 10% of sum assured: Sec 123 (old Sec 80C) denied, Sec 11 with Schedule II (old Sec 10(10D)) maturity exemption denied. Many miss these conditions and over-claim.
Sec 123 (old 80C(2)(a)); Sec 123 (old 80CCE); Sec 123 (old 80C; HUF); Sec 11 (old 10(10D)) link
The 10% rule, most important condition: Policy sum assured: ₹5L. Annual premium: ₹60,000. Test: ₹60,000 ÷ ₹5,00,000 = 12%. Premium is 12% of sum assured, above 10%. Sec 123 (old Sec 80C): only ₹50,000 allowed (10% of ₹5L). ₹10,000 excess premium gets no Sec 123 (old Sec 80C). And at maturity: Sec 11 with Schedule II (old Sec 10(10D)) exemption is ALSO lost, maturity proceeds taxable. The policy is a tax trap in both directions. Which policies have this problem: Old endowment and money-back plans (LIC Jeevan Anand pre-2000 era) often had very low sum assured relative to premium. Some ULIP policies with high premium and low mortality cover. Pure term insurance: sum assured is ₹50L on ₹8,000 premium = 1.6% ratio, no issue. Term plans always pass the 10% test easily. Premium for spouse and children, allowed: Husband can claim Sec 123 (old Sec 80C) for wife's LIC policy premium (if wife is dependent or even if working). Wife can claim for husband's policy.
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