Critical Illness Insurance Tax Benefits | Finserv MARKETS

Is Critical Illness Insurance Taxable?

Advancements in medical science have led to an astronomical rise in life expectancy. This has, however, not entirely eliminated or curbed the rise of critical diseases. It is said that one out of every four Indians is at the risk of dying due to non-communicable critical ailments like cancer, stroke, cardiac arrest, etc.

In 2017, India had 15 lakh cancer patients. It is estimated that by the end of 2020 this number will rise to 17.3 lakh. According to the World Health Organisation (WHO), every family will have one cancer patient by the end of 2020.

Moreover, 1.8 million Indians suffer from stroke each year. Similarly, 17 out of 100 people suffer from some kind of kidney ailment Moreover, the number of cardiac arrest patients has increased by 34% in India. The scenario gets even more gloomy with the sky-high medical bills, which financially disables many families.

The cost of treating the above diseases is in the range of Rs 3 lacs to Rs 15 lakhs and upwards. And the monthly expense for health management like medicines, dialysis, etc.is between Rs 5000 to Rs 40,000. The cost escalates further due to medical inflation, which rises by 10% to 15% each year. All this is taken care of if you have a health insurance policy with critical illness cover.

This article clarifies queries like ‘What is critical illness insurance?’, ‘Is critical illness insurance taxable?’, ‘What is Section 80D?’, and more. 

What is critical illness insurance?

When Alok was diagnosed with cancer, he only had a Mediclaim policy which took care of his hospitalization. The policy did not insure him against cancer and expensive treatments like chemotherapy which he had to undergo. He broke his fixed deposit to pay for the expensive treatment, which ended up costing him around Rs 10 lakhs. Moreover, he also had to quit his job due to weakness from chemotherapy and other treatments that followed.

In such a scenario, a health insurance policy with a critical illness cover would have been of great help to him and his family. A critical illness insurance gives you a lumpsum amount for medical treatment as well as rehabilitation. It offers you financial support while you recover from such life threatening diseases.

What is Section 80D?

Section 80D of the Income Tax Act, 1961, provides deductions on preventive health checkups and medical insurance. Since it manages to reduce your tax liability significantly, Section 80D plays a pivotal role in tax planning. According to this section, individuals below the age of 60 can claim a tax deduction of up to ₹25,000 on insurance premium paid for self, spouse, and children.

If the individual is more than 60 years of age, the maximum limit is ₹50,000. Maximum deduction for non-senior citizens and senior citizens is ₹50,000 and ₹1,00,000, respectively.

Understanding Tax Benefits Under Section 80D With an Example

In addition to the numerous benefits a critical illness policy has to offer, it also comes with an additional perk of tax savings. Let us explore the critical illness insurance tax benefits.

 

  • The premium paid towards this cover is eligible for tax benefits under section 80D of the Income Tax Act

  • A policyholder can enjoy tax savings of up to ₹25,000, provided he or she is less than 60 years of age. Similarly, senior citizens above 60 years of age get tax savings up to ₹50,000.

  • Any tax deductions under Section 80D of the Income Tax Act are applicable over and above the deductions availed under Section 80C.

For instance, let us assume that you have taken out a critical illness insurance policy for yourself, your wife, and kids. All of you are below 60 years of age. In this case, you would get a tax deduction of up to ₹25, 000 on the premiums paid.

Say, your parents are also covered under a similar but separate policy. In such a scenario, you would be eligible to receive a tax deduction of ₹50,000 on the premiums paid for them. Thus, your tax savings would be ₹75,000 under section 80D of the Income Tax Act.

Points to Remember

Here are a few important points related to the critical illness term insurance:

Section 80D can be Applied to Critical Illness Term Insurance

While Section 80D deductions can traditionally be availed only on health insurance plans, you can now avail deductions on term insurance plans as well. However, to do so, you need to opt for a health-related rider (for eg: critical illness, surgical care rider).

For instance, if your term insurance plan includes the add-on critical illness cover, you can avail comprehensive coverage for 19 minor and 36 major critical illnesses. Some of the ailments covered are cancer, heart ailments, Parkinson’s disease, etc. This plan takes care of financial hardships caused by critical illness, and thus, can be a source of relief to you and your family.

Term Insurance is Customisable

The policy can also be customised as per your needs. For instance, you can avail a Child Education cover that takes care of the child’s educational expenses in case of your death. Bajaj Allianz Smart Protect Goal provides coverage up to ₹1 crore with a low premium of ₹13 per day. What’s more? The life cover increases at every policy anniversary. Consequently, the maximum sum assured can increase up to 200% of the base cover.

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FAQs on Critical Illness Insurance 80D

  • ✔️Is critical illness insurance tax deductible?

    Premium amount paid towards critical illness insurance is not taxable according to Section 80D.

  • ✔️Is critical illness insurance payout taxable?

    The money you receive on a critical illness insurance claim is not an income; hence, the payout is not taxable.

  • ✔️What is covered under critical illness insurance?

    A critical illness insurance cover offers compensation against severe health conditions like cancer, heart attack, renal failure, among others.

  • ✔️Should you get a critical illness cover?

    A critical illness insurance policy usually covers you against 36 severe health conditions. The cost of treatment for these health issues can burn a hole into your pocket, hence, it is best to get a critical illness cover.

  • ✔️What is additional critical illness cover?

    An additional cover means you buy a separate critical illness cover along with the term insurance, which offers compensation in case you contract a severe disease.