Financial year end: is your term insurance actually working for you?

March is when most Indians scramble for tax-saving receipts. But here is a question worth pausing on: did your term insurance do what it was supposed to this financial year? Not just on the tax front, but as actual protection for your family?

This financial year end checklist covers three things: how to correctly claim term insurance tax benefits (and avoid the new-regime trap), how to check whether your coverage still matches your life, and the specific mistakes that cost people money every March. If you already have a term plan, this is your annual audit. If you are buying one before March 31, read the mistakes section first.

Financial year end tax benefits: Sections 80C, 80D, and 10(10D)

Term insurance interacts with three sections of the Income Tax Act. Each works differently, and the new tax regime has changed the math for two of them.

Section 80C: premium deduction (old regime only)

Term insurance premiums qualify for deduction under Section 80C of the Income Tax Act, up to Rs. 1.5 lakh per financial year. But this deduction is available only under the old tax regime. The new regime under Section 115BAC (as amended by Finance Act 2023, effective FY 2023-24 / AY 2024-25) does not allow 80C deductions at all. Since the new regime is now the default for salaried taxpayers, many people buy term plans in March for tax saving without realising they cannot actually claim the deduction.

There is a second condition that catches people off guard. For policies issued after 1 April 2012, the annual premium must not exceed 10% of the sum assured for the full deduction to apply (Income Tax Act, Section 80C(3A)). If your premium crosses this threshold, only the proportionate amount qualifies. Choosing a policy with a low sum assured relative to premium quietly reduces your actual tax benefit.

GST on individual term insurance premiums was reduced from 18% to 0% effective September 22, 2025. For policies renewed or purchased after that date, the premium you pay has no GST component. The Section 80C deduction applies to the total premium paid. For policies renewed or purchased on or after that date, the Section 80C deduction applies to the total premium paid, which is now the base premium only.

Section 80D: health rider deduction (old regime only)

If your term plan includes a critical illness or health-related rider, the rider premium qualifies for a separate deduction under Section 80D. The ceiling is Rs. 25,000 per year, or Rs. 50,000 if you are a senior citizen. This is entirely independent of the Rs. 1.5 lakh Section 80C limit (ICICI Prudential Life, Term Insurance Tax Benefits page, 2024). Again, this deduction is unavailable under the new regime.

Section 10(10D): death benefit exemption (both regimes)

The death benefit paid to your nominee is fully tax-exempt under Section 10(10D), regardless of the sum assured or premium amount. This exemption applies under both the old and new tax regimes. (Exception: Keyman insurance policies are excluded from this exemption under the Income Tax Act.) This is the one term insurance tax benefit that works under both old and new regimes. Section 194DA imposes TDS on insurance payouts — including maturity, survival, and surrender benefits — from any life insurance policy whose proceeds are not exempt under Section 10(10D). Death benefits are always exempt under Section 10(10D) and therefore never attract TDS under Section 194DA, regardless of policy type. Pure term insurance, which pays only a death benefit, is outside the scope of Section 194DA entirely.

The actual tax saving, calculated

A taxpayer in the 30% income tax slab under the old regime, claiming the full Rs. 1.5 lakh under 80C and an additional Rs. 25,000 under 80D for a health rider, saves: (Rs. 1,75,000 × 30%) + 4% health and education cess = Rs. 54,600 per year. This calculation uses the current slab rates under the Income Tax Act and the 4% cess rate applicable since FY 2018-19. The actual saving depends on your specific slab and whether your 80C limit has room after PPF, ELSS, home loan principal, and other competing deductions.

Financial year end coverage audit: is your sum assured still enough?

Tax benefits are a side effect of term insurance. The primary function is income replacement for your family. March is a good time to check whether your cover still matches reality.

The 10-15x income rule and why it often falls short

The standard benchmark for sum assured is 10 to 15 times your annual income. By that measure, someone earning Rs. 10 lakh per year needs Rs. 1 crore to Rs. 1.5 crore in cover. Yet many people hold Rs. 50 lakh policies that cover only five to six years of income replacement, leaving nothing for a home loan, children’s education, or a decade of daily expenses.

India’s life insurance protection gap stood at an estimated USD 16.5 trillion as of 2019, representing an 83% coverage deficit, according to the Swiss Re Institute’s report ‘Closing Asia’s Mortality Protection Gap’ (July 2020). This figure is now over seven years old and the actual gap may have shifted, but the direction is clear: the vast majority of Indian families remain significantly underinsured. Life insurance penetration in India fell to 2.8% of GDP in FY 2023-24, down from 3.0% the previous year, against a global average of approximately 7% (IRDAI Annual Report 2023-24).

If your income has increased, you have taken a new loan, or you have had a child since you bought your policy, your existing cover may no longer be adequate. Read more about how inflation erodes your term coverage over time.

Your year-end coverage checklist

• Sum assured vs current income: Does your cover equal at least 10 times your current annual income, not the income you had when you bought the policy?
• Outstanding liabilities: Add up your home loan, car loan, and any other debt. Your cover should account for these separately from income replacement.
• Nominee details: Are your nominees still correct? Life events like marriage, divorce, or a parent’s death can make nominee records outdated.
• Policy term: Does your policy last until your youngest dependent becomes financially independent, or does it expire too early?
• Rider review: If you added a critical illness rider years ago, check whether the rider’s sum assured has kept pace with medical inflation.

For a detailed look at whether your coverage level makes sense, see our analysis of how much term coverage you actually need.

Common mistakes when buying term insurance at financial year end

March buying is rushed buying. Rushed decisions lead to specific, avoidable errors.

Mistake 1: buying under the new regime without realising it

Since FY 2023-24 (AY 2024-25), Section 115BAC (the new tax regime) is the default for salaried taxpayers, as amended by the Finance Act 2023. If you did not actively opt out and choose the old regime, you cannot claim 80C or 80D deductions on your term insurance premium. Buying a policy in March specifically for tax saving, without first confirming your regime choice, is a common wasted purchase this time of year.

Mistake 2: choosing by premium alone

The cheapest premium often means the lowest sum assured, the fewest riders, or an insurer with weaker claim settlement performance. A term plan is not a commodity where the lowest price wins. Look at the claim settlement ratio (CSR), but look beyond it too. The industry-wide CSR for individual death claims settled within 30 days in FY 2023-24 settled within 30 days was 96.82%, per the IRDAI Handbook on Indian Insurance Statistics 2023-24, according to the IRDAI Handbook on Indian Insurance Statistics 2023-24. Several private insurers reported CSRs above 99%: Kotak Life at 99.99%, Bajaj Allianz Life at 98.73%, Axis Max Life at 99.97%, and HDFC Life at 99.98% (by benefit amount, settled within 30 days) (IRDAI Handbook on Indian Insurance Statistics 2023-24, released March 2025).

But CSR alone does not tell the full story. An insurer with a 99.5% CSR but slow processing times or a solvency ratio barely above the IRDAI minimum of 1.5x may be a worse choice than one with a 98.8% CSR and stronger financials. Check the solvency ratio, average claim processing time, and complaint ratio alongside the CSR. For a detailed comparison, see our breakdown of private vs PSU insurer claim performance.

Mistake 3: hiding material information

Non-disclosure of smoking status, pre-existing conditions, or a hazardous occupation is among the most frequently cited grounds for claim rejection. Under Section 45 of the Insurance Act 1938, insurers have a 3-year window from policy issuance to investigate material misrepresentation. In practice, most investigations happen at the claim stage, but insurers can initiate them earlier. Hiding information to get a lower premium saves money now. A full claim denial later leaves your family with nothing after years of payments. If you smoke, declare it. If you have a health condition, declare it. The premium difference is far smaller than a rejected claim.

Mistake 4: rushing through medical disclosures

Year-end urgency leads people to rush through medical questionnaires or skip pre-policy medical tests when given the option. Incomplete medical records create the same risk as deliberate non-disclosure: grounds for claim rejection. If your insurer requires medical tests, complete them honestly. A policy issued on accurate information is worth more than one issued fast.

Mistake 5: ignoring the lapse penalty

If you buy a term plan in March and then stop paying premiums within two years, Section 80C(5) of the Income Tax Act reverses all deductions you claimed. The previously deducted amounts become taxable income in the year the policy lapses. A term plan bought only for a one-time tax deduction can end up costing you more in reversed deductions than it saved.

Mistake 6: treating term insurance as an investment

Term insurance is pure risk cover. If you survive the policy term, there is no payout, and that is by design. The premium buys financial protection, not returns. Comparing term insurance to a fixed deposit or mutual fund misunderstands its purpose. Return-of-premium (TROP) variants exist, but they cost significantly more and may reduce the effective tax benefit due to higher premium-to-sum-assured ratios. Read our analysis of why TROP plans are not free insurance.

How to choose the right term plan before March 31

If you are buying a new policy this month, here is a concise decision framework.

Step 1: Confirm your tax regime. If you are on the new regime and buying purely for tax saving, stop. The deduction will not apply. Buy term insurance because you need life cover, not because March 31 is approaching.

Step 2: Calculate your required cover. Take 12 to 15 times your annual income. Add outstanding loans. Subtract existing life cover and liquid assets your family could access. The gap is your target sum assured.

Step 3: Check the 10% rule. Ensure the annual premium does not exceed 10% of the sum assured, or your 80C deduction will be proportionally reduced.

Step 4: Compare insurers on multiple metrics. Look at CSR, solvency ratio, claim processing time, and complaint ratio. Do not pick based on premium alone.

Step 5: Disclose everything. Fill out the medical questionnaire accurately. Complete any required medical tests. Name the correct nominees with accurate details.

Step 6: Pay before March 31. Your premium must be received by the insurer on or before March 31 for it to count in this financial year. Account for payment processing time if paying by cheque or bank transfer.

Frequently asked questions

Can I claim term insurance premium under Section 80C if I have switched to the new tax regime?

No. Section 80C deductions are not available under the new tax regime (Section 115BAC, as amended by Finance Act 2023). If you have opted for or defaulted to the new regime, your term insurance premium does not reduce your taxable income. The only term insurance tax benefit available under both regimes is the Section 10(10D) exemption on death benefit payouts to nominees.

What is the last date to pay term insurance premium for this financial year’s tax deduction?

Your premium payment must be made on or before March 31 of the financial year for it to count toward that year’s Section 80C deduction. Payments made even one day late fall into the next financial year. If you pay annually, confirm your renewal date and set a reminder at least two weeks before March 31.

Can I claim both Section 80C and Section 80D benefits on my term insurance policy?

Yes, if your term plan includes a critical illness or health-related rider. The base premium qualifies under Section 80C (up to Rs. 1.5 lakh), while the rider premium qualifies separately under Section 80D (up to Rs. 25,000, or Rs. 50,000 for senior citizens). These are independent ceilings under the old tax regime.

What happens to my Section 80C deductions if I stop paying term insurance premiums?

If your policy lapses within two years of purchase, all Section 80C deductions you previously claimed on that policy are reversed. The deducted amounts become taxable income in the year the policy lapses, per Section 80C(5) of the Income Tax Act. This is a real financial penalty, not just a loss of future benefits.

Is the death benefit from term insurance taxable for the nominee?

No. Death benefits from term insurance are fully exempt under Section 10(10D) of the Income Tax Act, regardless of sum assured or premium amount. This exemption applies under both the old and new tax regimes. Section 194DA imposes TDS on insurance payouts — including maturity, survival, and surrender benefits — from any life insurance policy whose proceeds are not exempt under Section 10(10D). Death benefits are always exempt under Section 10(10D) and are never subject to TDS under Section 194DA, regardless of policy type. Pure term insurance, which pays only a death benefit, is outside the scope of Section 194DA entirely.

Your term insurance should not be a March afterthought. Whether you are reviewing an existing policy or buying a new one, the right time to get this right is before the financial year closes. If you are still unsure whether term insurance belongs in your financial plan at all, start with why term insurance is the best life insurance for most Indians.