Latest tax benefits of term insurance under the new tax regime in 2025

Tax planning plays a crucial role in financial management, and life insurance remains one of the most effective tools for securing financial stability while enjoying tax benefits. However, with the introduction of the new tax regime in India, many taxpayers are unsure whether they can still claim deductions on term insurance premiums. 

Before diving into tax benefits, it's essential to understand what is life insurance in simple words. Life insurance is a financial safety net that provides a lump sum amount to your beneficiaries in case of your unfortunate demise. It ensures that your loved ones are financially secure even in your absence. By choosing the right life insurance plan, you can not only protect your family's future but also take advantage of various tax-saving opportunities under the prevailing tax laws.

What is life insurance in simple words?

Life insurance is a financial product that provides financial security to your family in case of your untimely demise. In simple words, it is a contract between the policyholder and the insurance company, where the insurer pays a sum of money to the beneficiary upon the policyholder’s death. Term insurance is a popular form of life insurance that offers pure life coverage for a fixed period at an affordable premium. Unlike other life insurance policies, term insurance does not have a maturity benefit, making it a cost-effective way to secure your family’s financial future.

Overview of the new tax regime in 2025

The new tax regime was introduced to simplify the taxation process by offering lower tax rates but removing many deductions and exemptions. As of 2025, taxpayers can choose between the new and old tax regimes. However, those opting for the new tax regime cannot claim deductions under Section 80C, which traditionally included tax benefits on term insurance premiums. Despite this, term insurance still holds importance in financial planning due to the tax-free nature of death benefits.

Tax benefits of term insurance under the new tax regime

Although the new tax regime has eliminated certain deductions, term insurance still offers several tax advantages:

1. Tax-free death benefits under Section 10(10D)

One of the most significant tax benefits of term insurance under the new tax regime is that the death benefit received by the nominee remains completely tax-free under Section 10(10D) of the Income Tax Act. This ensures that the policyholder’s family gets the full sum assured without any tax deductions.

2. No tax on maturity benefits in specific cases

While term insurance does not provide a maturity benefit, some term plans with return of premium (TROP) offer a payout at the end of the policy term. Under Section 10(10D), these maturity proceeds remain tax-free if the total premium paid does not exceed 10% of the sum assured.

3. Tax exemption on employer-provided group term insurance

Employees who receive group term insurance as part of their company’s benefits may still enjoy tax-free coverage under the new tax regime. Although employees cannot claim a deduction for premiums paid by their employer, the coverage amount remains non-taxable under certain conditions.

4. GST relief for term insurance premiums

Although not a direct tax benefit, individuals paying term insurance premiums can claim relief on Goods and Services Tax (GST) if they are self-employed and using the policy for business purposes. This can help reduce overall tax liability.

Should you choose the new tax regime if you have term insurance?

If you primarily invest in tax-saving instruments such as term insurance, Public Provident Fund (PPF), or Employee Provident Fund (EPF), the old tax regime may still be more beneficial, as it allows deductions under Section 80C. However, if you prefer a simpler tax structure with lower rates and do not claim multiple deductions, the new tax regime could be a better option. Consider the following factors before making a decision:

1. Compare your tax liability under both regimes using an online tax calculator.

2. Evaluate whether you rely on deductions to lower your taxable income.

3. Assess whether you need other benefits such as home loan interest deductions or health insurance premium deductions.

4. Consider your long-term financial goals before choosing between the new and old tax regimes.

How to maximise tax savings with term insurance?

Even under the new tax regime, you can maximise tax savings through strategic financial planning:

1. Choose a higher sum assured – Since the death benefit is tax-free, selecting a higher sum assured ensures greater financial security for your family.

2. Opt for long-term coverage – A longer policy term ensures continuous protection and stability in premium payments.

3. Consider joint term insurance – Married couples can opt for a joint term plan to ensure financial protection for both spouses.

4. Review your policy periodically – Reassessing your coverage needs can help you optimise your financial plan.

Conclusion

While the new tax regime in 2025 has removed deductions on term insurance premiums, the death benefit remains tax-free, ensuring financial security for your family. Understanding the latest tax benefits of term insurance helps in making an informed financial decision. Whether you choose the old or new tax regime, term insurance continues to be a vital investment for long-term protection. By assessing your tax liability and financial needs, you can select the right approach to maximise your benefits while securing your family’s future.