Generally people perceive that all monies received from Insurance Companies are exempt. This is not so. Section 10(10) provides for exemption for money received from insurance company in respect of insurance policy. First amount received in respect of all Key man Insurance policies are taxable. Secondly money received on death in respect of all the life insurance policies are exempt except those issued as key-man's insurance policy.

In respect of money received from Insurance Company other than in the event of death on all life insurance policies issued prior to April 1, 2003 will also be exempt from tax. However in respect of life insurance polices issued on or after April 1, 2003 but before March 31, 2012, money received from insurance company, other than on death, shall become taxable if premium payable in respect of this policy exceeds 20% of the sum assured in any of the year. However in respect of policies issued after March 31, 2012, the same will become taxable in the hands of recipient if the premium in respect of such policies exceeded 10% of the sum assured in any year.

In addition to above any money received in case of life insurance policy purchased for maintenance of physically disabled person under Section 80DD if such person dies before the proposer the money received by the proposer shall also be taxable.

So from the above discussion it becomes amply clear that you should take into account various factors before you buy any life insurance policy so that the premium paid is allowed and the money received in respect of such insurance policy is does not become taxable.

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