Health Insurance and Term Insurance: Tax Benefits and Why Employer Cover Isn't Enough

Health insurance and term insurance get bought for a very different reason than most tax-saving products. Nobody buys them hoping for a payout; the goal is that the money never has to be claimed at all. That's probably why so many taxpayers treat both as an afterthought, something to sort out once the rest of the tax planning is done, if there's any deduction room left over. The tax benefit is real and worth claiming properly, but it's the smaller half of the story. The bigger question, and the one this article actually focuses on, is whether the cover you're relying on, often just what your employer provides, would hold up if you genuinely needed it.

Health Insurance and Section 80D: What You Can Actually Claim

Section 80D, renumbered Section 126 under the Income Tax Act, 2025, though almost everyone still calls it 80D, lets you deduct health insurance premiums paid for yourself, your spouse, and your dependent children, up to ₹25,000 a year. That limit rises to ₹50,000 if the eldest person covered under that policy is a senior citizen. Premiums for your parents sit in a completely separate bucket: another ₹25,000, or ₹50,000 if either parent is 60 or above, regardless of whether they're financially dependent on you. Stack both buckets and a taxpayer covering their own family plus senior-citizen parents can claim up to ₹1,00,000 in a single year. A preventive health check-up is covered too, but only up to ₹5,000, and that amount sits inside the overall limit rather than adding to it. One catch worth remembering: this deduction is available only if you file under the old tax regime. If you've moved to the new regime, buy the cover anyway, you just won't get a deduction for the premium.

Term Insurance: the Premium Deduction and a Death Benefit That Stays Tax-Free

Term insurance premiums qualify for a deduction too, but under the same basket as PPF, ELSS, and home loan principal: Section 80C, renumbered Section 123, with its shared ₹1.5 lakh annual ceiling. If you're already maxing that limit through PPF or ELSS, an additional term insurance premium may not free up any extra deduction, so it's worth checking before you assume the tax break is stacking on top. What matters far more than the premium deduction is what happens at the other end: the death benefit your family eventually receives is exempt from tax under Section 10(10D), recodified as Schedule II(2) in the new Act, with no upper limit on the payout amount. A rule introduced in 2023 made maturity payouts from certain high-premium life insurance policies taxable once the aggregate annual premium crosses ₹5 lakh, but that rule targets investment-linked and endowment policies that actually have a maturity value. A pure term plan has no maturity payout at all, nothing comes back if you outlive the policy, so this restriction doesn't really touch it. The death benefit stays fully tax-free for your nominee regardless of how large the premium or the sum assured is.

A GST Change That Makes Individual Cover Cheaper Than Group Cover

Since September 2025, individual health and life insurance policies, term plans included, have been exempt from GST entirely. Before that, an 18% tax sat on top of every premium you paid. Group insurance, the kind your employer arranges for the whole office, didn't get the same treatment; it still carries the 18% rate. That's a meaningful, practical shift: buying your own term and health cover is now genuinely cheaper relative to group cover than it used to be, on top of already being more comprehensive and portable. It's a good moment to actually price out an individual policy rather than assuming employer cover is the cheaper default, because for once, it probably isn't.

Why Employer Group Cover Alone Usually Isn't Enough

• It disappears when the job does. Group health and group term cover typically end the day you resign, get let go, or retire, often with no continuity option, right when a gap in cover is the last thing you want.
• The sum insured is usually too small. Plenty of employer floater policies cover the whole family for ₹3-5 lakh, which barely covers a single serious hospitalisation in most cities today, let alone a family's combined risk.
• You can't customise it. There's no choice of insurer, no add-on riders, and no say in the room-rent limit or exclusions list; the policy is whatever HR negotiated for the whole company that year.
• Group term life cover is usually a flat multiple of salary, often 2-5 times annual pay, far below the 10-15 times most financial planners suggest for genuine income replacement if something happens to you.
• It can change or vanish without your input. Employers switch insurers, trim benefits, or drop a policy entirely during a cost-cutting year, and you often find out only at renewal time, or worse, at claim time.
• A rough starting point for your own cover: term insurance equal to 10-15 times your annual income, minus loans you'd want cleared, running at least until your major goals or retirement are funded, plus a family health floater of ₹10-25 lakh or more depending on your city, topped up cheaply with a super top-up policy as costs rise.

None of this means employer cover is worthless. It's a reasonable first layer, and it's free. But treating it as your entire health and life insurance plan is a bet that you'll never change jobs, never face a serious illness while between employers, and never need more than a fairly modest payout. Buy your own individual health and term policies while you're young and healthy, when premiums are lowest and underwriting is easiest, and let whatever your employer provides sit on top as a bonus layer, not the foundation.