How To Claim Tax Benefits On Multi-Year Health Insurance Plans?

Having a health insurance policy can bring many benefits. Along with coverage for medical emergencies, you can also enjoy tax advantages. As per current tax regulations, health insurance premiums can help you claim tax deductions under Section 80D of the Income Tax Act, 1961. These deductions can be availed each financial year when you are filing your Income Tax Return or ITR. ** However, this process works a bit differently for multi-year health insurance plans. For the uninitiated, these plans work such that their tenure is valid for multiple years at a stretch. So, there is no need to pay premiums or renew the plan every year. This can also mean that the yearly tax deduction process is carried out in a somewhat different way. Let’s see how.

Tax Benefit in Health insurance Plan

Health insurance plans offer significant tax benefits under various sections of the income Tax act. a major benefit is under Section 80D, which allows individuals to claim deductions on premiums paid for health insurance policies. By investing in a health insurance plan, taxpayers can reduce their taxable income, thus lowering their overall tax liability. The maximum deduction limits vary, providing substantial savings and encouraging individuals to secure their health and finances.

Under Section 80D: Tax Exemption On Health insurance

Section 80D of the income Tax act provides tax exemptions on health insurance premiums paid for self, family, and parents. The deduction limit is up to Rs. 25,000 for individuals below 60 years and Rs. 50,000 for senior citizens. additionally, an extra deduction of Rs. 25,000 is available if the parents insured are also senior citizens. This provision encourages people to invest in health insurance, ensuring financial protection against medical emergencies while availing of tax benefits. Thus, policyholders can enjoy comprehensive coverage along with significant tax savings.

How Do Tax Benefits Work with Multi-Year Health Insurance Plans?

To start with, we need to understand what the tax benefits are. Then, we take a look at how these tax benefits can be enjoyed with long-term medical insurance.

1. The premium paid for a health insurance policy every year can be used to claim tax deductions up to Rs 25,000 if you are under 60 years of age. If you have taken a policy for parents who are over 60 years of age, then you can claim an additional deduction of Rs 50,000. **
2. In a multi-year health insurance policy, the premium for multiple years is consolidated and paid as a single lump sum payment. This amount is naturally higher as compared to the regular annual premiums.
3. According to prevailing laws, the health insurance tax benefit amount in such a situation is to be determined proportionately for each year based on the duration of the policy. **
4. So, for instance, if a multi-year health insurance policy spans 2 years and premiums have been paid for the entire term, the tax deduction for each year would be 50% of the total premium amount.

Let’s use an example to understand this better: Let’s assume you have bought a multi-year health insurance plan with a tenure of 3 years. The lump-sum premium you paid was Rs 60,000 for the entire tenure. Now, the amount you can claim as a tax deduction under Section 80D would be Rs 20,000 for each year. So, you can claim Rs 20,000 in the first year, Rs 20,000 in the second year, and Rs 20,000 in the third year as well. Also read: A Guide on Saving Tax on Health Insurance

Things to Know About Tax Benefits on Multi-Year Health Insurance 

By now, you may have a clear idea of how you can claim medical insurance tax exemption. However, you should also keep the following points in mind when following the process:

1. The yearly tax deductions in a multi-year health insurance plan are subject to an upper limit of Rs 25,000 and Rs 50,000 depending on age. So, if your premium for a 4-year plan is Rs 1,20,000, the maximum deduction you can claim yearly is not Rs 30,000 but Rs 25,000 only. This is applicable if the people covered under the plan are less than 60 years of age. **
2. Most insurance companies provide an 80D certificate to multi-year health insurance policyholders stating the amount they can claim for the year.
3. Some health insurance plans may cover parents-in-law as well. However, premiums paid for their coverage may not be considered valid for tax deductions.
4. To be eligible for this tax deduction, the premium must be paid in any payment mode other than cash.
5. The deductions under Section 80D are only applicable to taxpayers opting for the old regime. No deductions are available to claim under the new regime under Chapter VI A of the Income Tax Act. **

Benefits of Multi-Year Health Insurance Plans 

Here are a few other advantages you can enjoy with a multi-year health insurance plan along with tax benefits:

No need for yearly renewal

With a multi-year plan, you no longer have to worry about renewing your plan every year. All you have to do is pay the premium once and the plan is valid for multiple years.

Locked premium

By paying the premiums for multiple years at once, you may ensure that you do not have to face premium hikes in any of those years. In most cases, if a hike is due, it may only become effective at the time of renewal. *

Savings

Many insurance companies have savings offers on multi-year plans. This may help reduce your premiums if you buy one. ## To get an idea of the premium and how you can make a health insurance plan more affordable, you can use a health insurance premium calculator. Thus, opting for a multi-year health insurance plan can be beneficial in many ways. By paying an affordable premium for multiple years at once, you can enjoy peace of mind and tax benefits as well. Also Read: Benefits of Health Insurance

FaQs

Can i claim the entire premium paid for tax exemption every year in a multi-year policy?

Yes, you can claim a proportional amount of the premium paid each year for tax exemption in a multi-year policy. The total premium is divided equally over the policy years.

Should i pay an extra premium if premiums are hiked in a multi-year policy?

in a multi-year policy, the premium is usually fixed for the entire duration. if there is a hike, it does not affect existing policyholders until the policy is renewed.

is it advisable to take multi-year health insurance plans?

Multi-year health insurance plans can be advantageous as they lock in the premium rate and protect against annual hikes. They also reduce the hassle of yearly renewals and offer long-term financial security.

How to claim maximum tax benefits in a health insurance plan?

To maximize tax benefits, ensure you include premiums paid for yourself, your spouse, children, and your parents under Section 80D. additionally, opt for policies that cover preventive health check-ups, which are also eligible for tax deductions.

Can i claim tax benefits for employer-sponsored health insurance?

No, tax benefits under Section 80D cannot be claimed for premiums paid by the employer. However, if you contribute to the premium, that amount can be claimed for a tax deduction.   * Standard T&C apply. ** Tax benefits are subject to change in prevalent tax laws. ## All savings are provided by the insurer as per the IRDAI-approved insurance plan. Standard T&C apply. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.