Embedded Value: Claim Section 80D tax sop for premium paid for critical illness rider in life insurance policy – The Financial Express

Premium paid under a mediclaim policy is deductible from taxable income subject to certain limit under Section 80D.

Any amount paid as premium to purchase or to keep in force a life insurance policy on one’s own life or on the life of the spouse or the children, irrespective of their age, qualifies for deduction up to Rs 1.5 lakh during a financial year under Section 80C of the Income Tax Act. In case of health insurance, however, there is a separate provision. Premium paid under a mediclaim policy is also deductible from taxable income subject to certain limit in respect of spouse, children and parents under Section 80D.

There are products with life insurers that would enable individuals to avail the benefits of both Section 80C and Section 80D through one composite policy. Life insurers sell critical illness rider as add-on cover to provide financial protection to the policyholders in case they get afflicted by life- threatening diseases.

Critical illness rider

Life insurance is an assurance of payment of the assured amount to the nominee only on death of the policyholder but when the policyholder suffers from any critical disease such as cardiac blockage and heart attack, cancer, brain haemorrhage or even kidney failure, he would himself require substantial amount to meet the expenses of treatment and also to support himself when he is not in a position to earn because of health impairment.

The critical illness rider comes very handy in such unfortunate situations in life. The life insurers immediately pay the assured amount   in lumpsum without any linkage to the actual expenses as it happens in the case of a health insurance policy. The premium paid for the critical illness rider is also exempted under Section 80D and can be separately claimed by a policyholder as deduction from the taxable income.

Any assessee can claim deduction of up to Rs 25,000 under this provision. Senior citizens are eligible for deduction up to Rs 50,000 in a year. Section 80D provides for such deductions in several circumstances and in respect of all the policies approved by Irdai as health insurance policy.

Health insurance products from life insurers

Almost all the life insurers in India have one or more health insurance products in their basket. Any person buying life insurance must take care to buy a pure health insurance policy or a life insurance policy along with the term and critical illness rider when he or she decides to go for life insurance. In such cases one can claim deduction from taxable income up to Rs 1.75 lakh or ven up to Rs 2 lakh to Rs 2.5 lakh depending upon the age of the life assured and of the family members covered by such insurance plans.

Policyholders must remember that all the health riders or health insurance policies issued by the life insurers offer to pay only a stipulated lumpsum amount on the detection of the covered disease; they normally do not cover benefit on reimbursement basis. The life insurers do not ask for vouchers of expenses; they only seek confirmation of the fact that the policyholder is diagnosed to be suffering from the listed disease.

Buying health insurance policies or riders from life insurers is therefore a prudent proposition. The policyholder gets unique financial protection for himself and also provides adequate protection to his family through one or two life insurance policies.

The writer is former MD & CEO, Star Union Dai-ichi Life.