Tax on life insurance maturity and payouts

For most policies, the maturity amount is exempt under Section 10(10D), provided the premium stayed within the prescribed percentage of the sum assured during the policy term. So a normal life insurance policy's maturity comes to you tax-free.

For traditional (non-ULIP) policies issued after the relevant date, if the aggregate annual premium exceeds Rs 5,00,000, the maturity proceeds are no longer exempt and are taxable. This closed the use of high-premium endowment-type policies as large tax-free investments.

For ULIPs, the threshold is lower — annual premium above Rs 2,50,000 makes the maturity taxable as capital gains. So both traditional and unit-linked policies have premium caps beyond which the exemption is lost, at different levels.

Regardless of premium size, the death benefit paid to nominees generally remains exempt. The high-premium rules affect the maturity/investment proceeds when you survive the term, not the life-cover payout on death.

If your policy's annual premium is large, check it against the Rs 5,00,000 (traditional) or Rs 2,50,000 (ULIP) thresholds to know whether the maturity will be tax-free. For most ordinary policies, well within these limits, the maturity remains exempt.