Wednesday, June 12, 2024

are insurance settlements taxable

want to know settlements in insurance are taxable or not ? if yes then this article is for you. After reading this article you will have to complete information about the settlements are taxable in insurance.

See, apart from monetary benefits, health and other expenses and future security, a doubt comes to mind about the taxation status of the settlement amount that will be provided once in the provided condition.

In this post, we are going to understand this in complete detail by explaining about some types of insurance policy.

Insurance amount taxation status

See, there are different taxation status on different kinds of insurance policies such as term insurance, life insurance, health insurance, etc. this depends on different criterions such as the policy is taken according to savings or investment purposes or it is for expenses covering purposes.

Apart from it there are certain sets of rules determining each type of insurance separately. We will be explaining about health and term insurance further.

Health insurance cover

See, the health cover is the expense to injury and medical expenses, which is meant to cover the expense occuring due to any medical treatment and hospitalization. This cover do not comes to the savings and investment purposed, so there are tax exemption on the total claim amount reimbursed, having some conditions as:-

  1. If the policy is taken after 1st april 2012 and the premium amount is more than 10% of the sum assured.
  2. If the policy purchased before 1st april 2012 and the premium paid is more than 20% of the sum assured.

One thing should be noticed that it should be subtracted the premium paid including bonuses from the sum assured, and this income comes in the category of income from other sources category for taxation purposes(if any).

Term insurance cover

As the term insurance cover comes in the most protected category, that comes into effect after the policyholder’s demise and it for covering the expense for family and future security and is helpful in case if the person is main earning member of the family and not comes in the investment and savings kind of purchases thus having several tax benefits.

Section 10D provides tax benefits for term insurances provided to further terms and conditions. The following points explains about the taxable status of term insurance provided:

  1. Tax is exempted in the case of death benefits (received by nominee) and the maturity amount reimbursed according to section 10D.
  2. Term insurance plan’s premium may not be more than 10% of the sum assured if the plan is purchased before 1st April 2012 or not exceeding 20% of the sum assured if the plan is purchased before 1st April 2012 for tax exemptions.
  3.  Policyholders should pay the premium on time to ensure policy active and further tax benefits and other benefits apart from section 10D. 


Investment and savings oriented insurances have different taxation status from those of expense covering and future proof types insurance policies. However there are some exceptions according to the section 10D discussed above.

You can check your condition prior to purchasing any insurance policies so that this might not be any barrier in claim settlements. Hope you understood this topic. Let me know about any doubt in comments. Thanks

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