Is Critical Illness Insurance Taxable

Is Critical Illness Insurance Taxable?


In today’s time, while we can accurately predict rain, storms, cyclones and many other catastrophes of large scale when it comes to the complexity of the human body, critical illnesses can still come unannounced. When they do, they wreak havoc on the mind, the body and also on the financial health due to the high medical expenses related to them. Fortunately, there are ample products in the market to help protect you and your family from the financial burden these diseases can inflict.


Critical Illness Insurance is one such tool. In this article, we shall examine the features, benefits and even drawbacks of these plans. We will also answer the often asked question - is critical illness insurance taxable or not? And other related questions, too.


Difference Between Critical Illness Insurance and Regular Health Insurance

Many people may already have health insurance for themselves and their families or might have been provided with a mediclaim plan from their employing organisation. It is natural for them to wonder why they should purchase a separate plan only for critical illnesses. Well, the foremost difference between the two is that a standard health plan only covers your hospitalisation related costs. On the other hand, a critical illness plan is a partner for the longer term. It covers costs such as doctors and specialists consultation fees, the cost of expensive medicines and treatment, and post-hospitalization services, including home care etc. Just like regular health insurance, critical illness insurance is tax-deductible as well.

Critical Illness Insurance Benefits and Drawbacks

Let us first look at the most common benefits of buying a critical illness insurance plan.

  • Critical Illness Insurance Benefit:

Naturally, this plan's most significant and obvious benefit is that it provides you coverage from a list of critical illnesses as mentioned in your policy terms and conditions. Most policies pay the entire sum assured on the policyholder being diagnosed with a terminal illness. This is of immense value, especially if you would have otherwise dipped into your savings to meet your medical expenses.

  • Affordable With High Cover:

Since there are no other endowment components like savings or equity linking, you are able to get a high illness cover at affordable premium rates.

  • Disability Benefits:

Several plans have an in-policy feature to provide benefits in case you meet with an accident or illness-related disability. Most often, it entails the continuance of your policy term without the need of paying any more premiums. In others, it can be opted as an add-on to the base policy. This may differ among different insurers.

  • Tax Benefits:

Another important benefit is that critical illness insurance is tax deductible. To be more specific, the premiums you pay for your policy can be claimed as an exemption under the Section 80D of the Income Tax Act of India. Points worth noting here are:

  • You can save anywhere from Rs. 25,000 to Rs. 1,00,000 each year based on your own age and the age of the people you are purchasing the policy for.

  • The benefits under section 80D are over and above the life insurance, pension plan and other benefits offered under Section 80C, which in itself has a cap of Rs. 1.5 Lakh per annum.

  • The amount received as a critical illness lump sum payment is not taxable either.


The benefits of a critical illness insurance plan far outweigh its limitations. However, to make an informed decision, you must be aware of them as well. Here they are.

  • A standard critical illness plan is a very specific situation based cover. The payout is applicable only if a critical illness is diagnosed and confirmed in accordance with the stipulated guidelines. There are no other forms of benefit that this policy provides apart from the fact that critical illness insurance is tax deductible.

  • This kind of insurance cannot be used to generate long term wealth. It is purely to cover your expenses in case a listed critical illness befalls you.

  • The list of illnesses may vary for different insurers. If the kind of illness you are diagnosed with is not listed in the insurer’s list, then you are not entitled to the benefits the policy provides.

Who is eligible to claim the particular benefit?

The beneficiaries of a critical illness plan are both the policyholder and the family. If you have a plan on your name, then you can avail the annual tax benefits of the critical illness insurance under section 80D. Furthermore, if you happen to get diagnosed with a critical illness, the insurer shall provide for the cost of expenses, thereby helping you and your family preserve your savings for when it is truly needed.


Healthcare costs can be extremely high, and more so in the case of severe illnesses. A critical illness insurance plan can come to your aid during such unfortunate times. But with so many plans in the market, it is financially prudent to weigh the pros and cons of different policies to get the one ideally suited for you. Visit Finserv MARKETS to easily compare a variety of policies online and buy them completely at attractive premium rates. 

Frequently Asked Questions

  • ✔️Is there any medical test required before buying a critical insurance plan?

    Yes, all reputed insurers require you to declare any existing medical conditions and go through a standard medical test to calculate your premium and coverage amounts.

  • ✔️Can I purchase a critical insurance plan after being diagnosed with an illness?

    Most insurers do not allow for buying a plan after already being diagnosed. However, you can visit Finserv MARKETS to understand the specific terms of different policies.

  • ✔️Is critical illness insurance payout taxable?

    Under Section 80D, critical illness payout is tax exempted.

  • ✔️Who can I buy critical insurance for?

    You can buy a critical illness plan for yourself, your spouse, children and dependent parents.

  • ✔️Is critical illness insurance tax deductible?

    Yes, indeed. Under Section 80D, critical illness insurance premiums of upto Rs. 25,000 are tax deductible for people under the age of 60 and up to Rs. 50,000 for senior citizens (above 60 yrs of age). Apart from the tax-free premiums, the critical illness insurance payout is not taxable either.