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Life assured, proposer or premium payer – who may claim tax benefits on life insurance?

Amitava Chakrabarty
life insurance, insurable interests, insurance contract, life assured, proposer of life insurance, insurance premium, tax benefits on insurance premium, income tax, endowment insurance plans, transfer of risk, life risk, insurance company

Life insurance is a contract through which a person transfers to an insurance company the life risk of a person in whose life he or she has an insurable interest. Insurable interest means gains from survival of a person or probability of suffering financial loss on the demise of the person. For example, a dependent parent has insurable interest in the life of an earning son or daughter, because the parent depends on his or her earnings and would suffer financial loss on the demise of the earning son or daughter.

Similarly, a housewife has an insurable interest in the life of her husband, an employee in the life of his/her employer, an employer in the life of his/her key employees etc. It is also considered that a person has infinite insurable interest in his/her own life.

However, although a minor child has insurable interest in the life of his/her earning parents, but children can’t take insurance for parents because, as a minor, a child can’t enter into a contract. Interestingly, even major sons and daughters, who are earning or are capable to earn, also can’t take insurance on parent’s life due to lack of insurable interest, as loss of parent may cause emotional loss, but not financial loss.

As per the rules, a person may pay premium for insurance on the life of the person, in which he or she has insurable interest, and claim tax benefits on premium payments, even if he or she can’t propose for the insurance. This is because, a proposer can only be a different person, only when the life assured is not capable of entering into a contract, like minor children.

So, a person, who is a major and is capable of entering into a contract, has to propose insurance for his/her own life, but another person having insurable interest, like parent or spouse, may pay the premium and claim tax benefits.

So, a life assured may pay premium for insurance in his/her own life and claim tax benefits. For example, an earning person taking insurance for himself or herself.

On the other hand, a proposer may also claim tax benefits by paying premium after proposing for insurance of a person, who is not capable of entering into a contract, but in the life of whom he/she has insurable interest. For example, a parent for the insurance of his/her minor children.

Also, payer of the premium (who is neither the proposer nor the life assured) for insurance of a person in whom he/she has insurable interest may also claim tax benefits. For example, a parent for the insurance of his/her son or daughter.

As endowment insurance plans also generate returns, there is an exemption for such insurance in case of husband and wife. For example, although an earning spouse doesn’t have insurable interest in the life of non-earning spouse, but may still pay premium and claim tax benefits.

So, anyone among the life assured, proposer and premium payer may claim tax benefits on actual payment of premiums, if the condition of insurable interest fulfills, except for spouse.