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    Do Beneficiaries Have to Pay Taxes on Life Insurance?

    Last Updated On 21-03-2023

    A life insurance policy is an efficient tool to take care of your loved ones in your absence. It provides a death benefit to your dependents if anything unfortunate happens to you and acts as a financial cushion. In term insurance, the death benefit is provided only when the policyholder dies during the policy tenure.

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    But, other types of life insurance offer maturity benefits too on surviving the policy term. Life insurance also helps in tax savings where premiums up to ₹1.5 lakhs are tax-exempt under Section 80C of the Income Tax Act, 1961. But you might wonder if you or the beneficiary of your life insurance has to pay taxes on the maturity or death benefit. Find out here.

    Taxability on Life Insurance Plans

    According to Section 10(10D) of the Income Tax Act, 1961, the life insurance proceeds paid on the policy’s maturity/surrender or death of the insured are tax-free. While there is no upper limit to the tax exemption under Section 10D, the payouts are subject to taxation under certain conditions in the hands of the policyholder:

    • If the policy is issued after 1.4. 2003 but before 31.3. 2012 where the premium per annum exceeds 20 percent of the sum assured, the policy benefits are taxable. It is to be noted that the sum assured does not include the bonus amount or the premium that the insurance provider has to return to the policyholder.
    • If the policy is issued after 1.4.2012, where the premium paid annually exceeds 10 percent of the assured sum, the policy proceeds will be taxable.
    • If the policy is issued after 1.4. 2013 and the policyholder suffers from a severe disability or critical illness, then the limit is increased to 15 percent of the sum assured. But the disability or critical illness must come under relevant sections of the Income Tax Act,1961.
    • If the premium in any year exceeds the prescribed percentage of the sum assured, the entire payout will be taxed in the year it is received. But, if the policyholder dies and the proceeds go to the beneficiaries, no tax is applied, even if the premium in any year exceeds the prescribed percentage.

    When Do Beneficiaries Have To Pay Taxes On Life Insurance Payouts?

    Usually, the beneficiary doesn’t have to pay taxes on life insurance payouts. But many people believe that life insurance proceeds are tax-free in the hands of the nominees in every situation. The situations when the beneficiary is required to pay taxes on the life insurance payouts are as follows:

    • Accrual of interest

      When a policyholder specifies not to pay the death benefit to the beneficiary immediately after his/her death, the insurer keeps the insurance payout on which interest accumulates. When the sum assured is released to the beneficiary along with the interest payment, the receiver has to pay taxes on the accumulated interest.

    • The estate becomes the beneficiary

      If the policyholder names an estate or doesn’t mention any beneficiary in the life insurance policy, the death benefit becomes part of the policyholder’s estate. Also, if the primary beneficiary dies with no contingent beneficiary, the insurance payout is considered the policyholder’s estate. In this situation, the sum assured is taxed like an estate or inheritance. Thus, to avoid payment of taxes, the policyholder must name a beneficiary and a contingent beneficiary.

    To Sum It Up

    Knowing the tax provisions of any financial product is crucial before moving ahead. No doubt, life insurance plans help you in tax-saving, but you must know when the policy proceeds are taxed and when not to make an informed decision. So, ensure to read all the terms and conditions of the policy carefully to know about tax deductions. You must also name at least one primary beneficiary and one contingent beneficiary to ensure tax-free death benefits.


    The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.

    PNB MetLife India Insurance Company Limited
    Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
    IRDAI Registration number 117 | CIN U66010KA2001PLC028883
    For more details on risk factors, please read the sales brochure and the terms and conditions of the policy, carefully before concluding the sale.
    Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details.
    Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time.
    The marks "PNB" and "MetLife" are registered trademarks of Punjab National Bank and Metropolitan Life Insurance Company, respectively. PNB MetLife India Insurance Company Limited is a licensed user of these marks.
    Call us Toll-free at 1-800-425-6969, Phone: 080-66006969, Website:, Email: or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra. Phone: +91-22-41790000, Fax: +91-22-41790203.

    Beware of Spurious Phone Calls and Fictitious / Fraudulent Offers!
    IRDAI is not involved in activities like selling insurance policies, announcing bonus or investments of premium. Public receiving such phone calls are requested to lodge a police complaint.




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    As your trusted life insurance partner, PNB MetLife is with you amidst the current COVID-19 outbreak. Our policies also cover COVID-19 Claims. In case of a Death Claim, kindly submit the signed Claim Intimation Letter mentioning the policy number, brief of the insured event and other claim documents on the email mentioned herewith. Please write-in to us at or You can also call us on 1800-425-6969 for death claims intimations and for any queries on Monday - Saturday between 10:00 am - 7:00 pm.

    PNB MetLife Insurance, amongst the trusted Life Insurance companies in India, aims to provide a wide range of Life Insurance products that suits the needs of an individual at every stage of his life. Life Insurance Plans range from Term Life Insurance PlansTerm PlanProtection PlansLong Term Savings Plans , Retirement Plans & Child Education Plan.

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