Critical Illness Rider: Not just added coverage, but added tax benefits too!


A term policy comes with several tax benefits, including tax deductions up to ₹ 1,50,000 under Section 80C of the Income Tax Act. But most people need to learn that a term insurance policy can give them even more tax deductions if they integrate a critical illness rider into the same. So let us look at what these riders are before learning about the tax benefits that they provide. 

Critical illness riders- Knowing more about them 

Critical illness riders are designed to help policyholders cover the cost of treatments if diagnosed with any critical ailment. These are life-threatening diseases, including cancer, kidney failure, strokes, and more. These riders boost overall coverage under a term insurance plan while also offering a lump sum amount to the policyholder upon the diagnosis of any such illness. The best part is that you can get this extra coverage at a comparatively reasonable cost in terms of the additional premium (payable over and above your regular term policy premium). 

Here are some crucial aspects worth noting about critical illness riders: 

  • They help policyholders cover medical costs after diagnosis without depleting their savings or compromising on the quality of treatment due to the paucity of funds. 
  • The rider may be purchased while starting the policy or while renewing it in any subsequent year as well. 
  • The rider ceases to be in force once the sum assured is paid out by the insurance company upon the diagnosis of a critical illness or the completion of the tenure, whichever comes earlier. 
  • The sum assured paid out by the rider can also help the policyholder cover income losses in the treatment period. 
  • There will be no change in the premium amount in case the policyholder is diagnosed with any critical illness. 
  • The rider’s inclusions and exclusions should be studied carefully since the insurance company only pays out the lump sum upon the diagnosis of any listed critical illness in the policy. Ailments that are not listed will not be covered under these plans. 

Now that you have an idea about critical illness riders and how they help policyholders navigate increased medical costs and other needs in emergency situations, here’s a look at their tax benefits. 

What are the tax benefits offered by critical illness riders under Section 80D? 

Choosing critical illness coverage means getting tax deductions under Section 80 (80D) of the Income Tax Act. This section offers deductions for premiums paid for health coverage or health insurance policies. With critical illness coming under this category, term insurance policyholders can get these tax benefits over and above their Section 80C deductions. 

Here are some key pointers worth noting: 

  • Premiums paid for a policy that covers yourself, your spouse, or your child can be used to claim deductions up to Rs. 25,000 under Section 80D (if you are all under 60 years of age). 
  • If you pay the premiums for your parents (who are above 60 years of age), you can get an extra deduction of Rs. 50,000 under Section 80D. 
  • The total deductions can thus be up to Rs. 75,000 annually under Section 80D. 

Once you add a critical illness rider to your term insurance policy, you will be eligible to get the same tax deductions on your premium payments. This will be a sum paid in addition to the amount you pay for your regular term insurance plan. You should take professional advice before choosing your critical illness rider while getting more guidance on available tax deductions and how to claim the same. 

However, while choosing a term insurance plan, do not let tax benefits be your only criterion. Make sure you use a term plan calculator to calculate the premium for a particular coverage amount. Compare coverage and premiums of various policies while checking the insurance company’s reputation, claim settlement ratio, and policy tenure carefully. The right strategies can always help you reap the benefits in terms of tax savings. Critical illness is one such rider that offers the best of both worlds, i.e., future financial security in case of any major ailment, and also tax deductions throughout its tenure. This makes it a great addition to any term insurance plan.