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Critical illness Insurance Policy
Nov 14, 2023

Can You Avail Section 80D Tax Benefits On A Critical Illness Insurance Policy?

In these times of medical inflation, health insurance is no longer a luxury but rather a necessity. However, there are some diseases for which your regular health insurance plan may require the support of additional coverage, such as a critical illness insurance plan. It is a plan aimed to provide coverage against serious, life-threatening illnesses, such as cancer, paralysis, strokes, and so on. Buying a critical illness insurance policy can help you rest assured about your finances if a critical illness were to come knocking at your door. However, that is not the only benefit it provides. A critical illness insurance plan also provides tax benefits to the policyholder under Section 80D of the Income Tax Act, 1961. Claims are subject to terms and conditions set forth under health insurance policy. Let’s learn more about the tax benefit you can claim with the help of critical illness insurance.

Section 80D Tax Benefits on Critical Illness Insurance Premiums 

Section 80D of the Act primarily deals with tax benefits that one can claim against their health insurance plan. Hence, many people may wonder if these benefits are also available for other types of health-oriented insurance plans, such as critical illness insurance. The straightforward answer is 'yes’, you can claim Section 80D tax benefits with the help of a critical illness insurance plan. Here’s how:
  1. The premium that you pay for a critical illness insurance plan is tax-deductible under Section 80D of the Income Tax Act, 1961. Meaning, the premium can be used to reduce your tax outgo on an annual basis. **
  2. The maximum amount you can claim under this Section depends on age. If the critical illness insurance covers you and your family (spouse + children), the deduction limit is set at ₹ 25,000. This is applicable if all the individuals covered under the plan are under 60 years of age. **
  3. If you have bought a critical illness insurance plan for your parents, then you can claim an additional deduction of ₹ 25,000, if they are under 60 years of age too. If they are over the age of 60 years, the limit extends to ₹ 50,000. **
  4. If you and your spouse are over 60 years of age as well, then you can also claim a deduction of up to ₹ 50,000. **
Let’s use an example to better understand the above points: Mr Jeet’s family had a genetic history of cancer. To protect his family and finances from the onslaught of cancer and its treatment, he bought critical illness insurance. He bought one plan for his parents (both over 60 years of age), whose premium was ₹ 25,000. Since his parents were above the age limit, he could claim the entire amount as a tax deduction. He also bought another critical illness insurance plan for himself and his wife (both under 60 years of age), whose annual premium amounted to ₹ 15,000. He could also claim the whole amount as a tax deduction since it was under ₹ 25,000 and the couple were under the prescribed age limit. He did not have any other active health insurance policy. Thus, under Section 80D, he can claim a total of ₹ 40,000 as a tax deduction. Claims are subject to terms and conditions set forth under health insurance policy. Note: This tax benefit on health insurance is only applicable to taxpayers under the old tax regime. Individuals who are paying taxes under the new regime are not eligible for these benefits. **

How Does a Critical Illness Insurance Policy Work?

To make the most of your critical illness plan, it is important to have a clear idea of how such a plan works. Here are some pointers on the same:
  1. Critical illness insurance is a benefit-based plan. That is, instead of reimbursing the treatment expenses, it provides a lump-sum payout on the diagnosis of a covered illness. *
  2. Most critical illness insurance plans cover cancer (of specified severity), major organ transplant, coronary artery bypass surgery, multiple sclerosis (with persisting synonyms), kidney failure, primary pulmonary arterial hypertension, first heart attack, and so on. Along with illnesses, the plan also covers major medical events and surgeries. *
  3. If any of the insured members get diagnosed with the specified ailments in the policy, a claim can be raised with the insurance company. The claim will be processed only if the diagnosed individual has lived the survival period as specified in the policy terms (generally, a period of 30 days after the diagnosis). *
  4. Once the claim is approved, the benefit amount can be used by the policyholder in any manner they see fit. It can be used for long-term treatment, to run household expenses, or even to fund a flight abroad for foreign treatment.
Claims are subject to terms and conditions set forth under health insurance policy. Critical illness insurance should ideally be bought as a supplement to your regular health insurance plan . While the latter takes care of standard hospitalisation, the former comes to the rescue in case of a diagnosis of a severe illness. Claims are subject to terms and conditions set forth under health insurance policy.   * Standard T&C apply. ** Tax benefits are subject to change in prevalent tax laws. 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.

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