Term Plans and HUFs – How Term Plans Help Maximise Tax Benefits for Joint Families?

How Term Plans Help Maximise Tax Benefits for Joint Families

Are you seeking a way to protect your family’s financial future while maximising tax benefits? Term insurance plans are an excellent financial tool for providing financial protection to your loved ones in case of any unfortunate event. They can also help you optimise tax liabilities and maximise benefits for your Hindu Undivided Family (HUF)? Explore how term plans can help you optimise your tax liabilities and ensure the financial well-being of your loved ones.

Understanding the Power of Term Life Insurance Plans

A term life insurance plan is popular as it provides affordable coverage for a specific period. These plans offer a lump-sum payout to your beneficiaries in the event of your untimely demise during the policy term. However, term plans offer more than just protection; they come with valuable tax benefits that can significantly reduce your tax burden.

The Role of HUFs in Maximising Tax Benefits

The HUFs can be an effective tool for tax planning as they allow you to optimise your tax liabilities while including your family members to benefit. Formed automatically within a Hindu family, HUFs can include all members from a common ancestor, including their wives and unmarried daughters.

HUFs are treated as separate entities for income tax purposes and are taxed accordingly. They enjoy similar tax benefits as individual taxpayers under various sections of the Income Tax Act, including Section 80C, 80D, and 80G. Additionally, HUFs also qualify for exemptions under Sections 54 and 54F with respect to capital gains.

To create an HUF, you need to execute a deed, obtain an HUF PAN, and open a bank account in the name of the HUF. The senior-most male member of the family becomes the Karta or the head of the HUF. 

How Term Insurance Calculators Help Determine Coverage?

Before we delve into the tax benefits of term plans, let’s discuss how you can determine the right coverage amount using a term insurance calculator. It is an online tool that helps you assess your life insurance needs based on age, income, liabilities, and financial goals. You can estimate the coverage amount required to secure your family’s financial future by inputting these details.

For example, consider Mr Sharma, a 35-year-old married man with two children and a monthly income of ₹80,000. He has outstanding loans of ₹30 lakh and wants his children’s education expenses to be covered in case of any unfortunate eventuality. Using a term insurance calculator, Mr Sharma realises that he needs a coverage amount of at least ₹1 crore to adequately meet his family’s needs. Using a term insurance calculator, Mr Sharma can ensure that his family will be financially secure even in his absence.

Maximising Tax Benefits with Term Plans for HUFs

Now that we understand the importance of term plans and how to determine the right coverage amount, let’s explore how they can benefit HUFs when it comes to tax planning.

Separate Tax Entity

One significant advantage of forming an HUF is that it is considered a separate tax entity under the Income Tax Act. This means that HUFs are taxed separately from their members, allowing for better tax planning opportunities. The income tax slab for HUFs is the same for individuals, with an exemption limit of ₹2.5 lakh and all the tax benefits under sections 80C, 80D, 80G, etc. As a result, HUFs can enjoy the same deductions and exemptions available to individuals while optimising their overall tax liabilities.

Tax Exemptions and Deductions

Regarding term life insurance plans, HUFs can also take advantage of various tax exemptions and deductions available under Section 80C of the Income Tax Act. Premiums paid towards term insurance plans qualify for deductions up to ₹1.5 lakh annually, reducing the taxable income of the HUF.

For example, a HUF pays an annual premium of ₹50,000 towards a term plan. This amount can be claimed as a deduction under Section 80C, effectively lowering the taxable income of the HUF by ₹50,000.

Apart from Section 80C benefits, HUFs can also avail themselves of other tax benefits like exemption on gifts received up to ₹50,000 and exemptions under Sections 54 and 54F with respect to capital gains. These additional benefits can further enhance the tax-saving potential of term plans for HUFs.

Dual Benefits of Protection and Tax Savings

By investing in term life insurance plans, HUFs secure their members’ financial future and maximise tax benefits. Term plans combine life cover and tax savings, making them an attractive option for joint families.

For instance, consider the case of Mr Verma, the Karta of a HUF consisting of his wife, two children, and his father. Mr. Verma chooses a term plan with a coverage amount of ₹1 crore for a policy term of 30 years. In addition to protecting his family’s financial well-being, he can claim tax deductions on the premium paid under Section 80C.


Term life insurance plans offer joint families the opportunity to secure their financial future while maximising tax benefits. Understanding the power of term plans and utilising them within a HUF structure can help you optimise your tax liabilities while ensuring your loved ones are financially protected. As you explore term plans for your joint family, use a reliable term insurance calculator to determine the right coverage amount based on your specific needs.