Does the 5 lakh tax rule apply to my old policies?

No, the rule only applies to life insurance policies (excluding ULIPs) issued on or after April 1, 2023.

Is the 5 crore death claim taxable for my wife?

No. Death benefits remain completely tax-free under Section 10(10D), regardless of the premium amount you paid.

Can I get a 5 crore cover with a 10 lakh salary?

Unlikely. Insurers usually require an annual income of 15 to 20 lakh rupees for such a high sum assured.

Is GST still charged on term insurance?

The GST Council recently recommended exempting pure term insurance from GST, making premiums significantly cheaper for policyholders.

What happens if I have multiple policies totaling 6 lakh premium?

The maturity proceeds from all policies will become taxable as the aggregate premium exceeds the 5 lakh rupee limit.

How does the MWP Act help me?

It ensures your insurance payout goes only to your wife and children, protecting it from any business creditors or legal claims.

Millionaire Tax Impact on 5 Crore Term Insurance Explained

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The Millionaire Tax: How Your Five Crore Term Plan Payout is Taxed Now

Understanding the 2023 tax rules on high premium insurance and why pure term plans are still your best bet.

4 min read

OneAssure Team

April 05, 2026

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

The Five Lakh Rupee Trap

You decide to secure your family with a 5 crore rupee term cover. You choose the Return of Premium (ROP) option because you want your money back if you survive. Your annual premium crosses 5 lakh rupees. You think the maturity amount will be tax-free. It won't be. The taxman changed the rules in April 2023. This is what many call the Millionaire Tax. If your total annual premium for life insurance policies (excluding ULIPs) exceeds 5 lakh rupees, the maturity proceeds are added to your income and taxed at your slab rate.Tax laws hit hard. They target high earners. If you are paying 6 lakh rupees across three different policies, you are in the net. The 5 lakh limit is aggregate. It counts every non-ULIP policy you bought after April 1, 2023. If you survive the term, that big ROP cheque will shrink after taxes.

Death Benefits Stay Untouched

Here is the good news. Your family is safe. The 5 lakh rupee limit does not apply to death benefits. If the unthinkable happens, the 5 crore rupee payout goes to your nominee completely tax-free. Section 10(10D) of the Income Tax Act still protects the death claim. This makes pure term insurance a superior choice for high income earners. You pay for protection, not for a taxable maturity return. Pure term plans usually have premiums well below the 5 lakh limit anyway. For example, a 30 year old might get a 5 crore cover for just 60,000 to 80,000 rupees a year. This keeps you far away from the Millionaire Tax net.

Qualifying for the Five Crore Shield

Insurers do not give out 5 crore covers to everyone. They need proof of your human life value. Usually, you need an annual income of at least 20 lakh rupees to qualify for such a high sum assured. Expect intense scrutiny. You will need to provide the last three years of Income Tax Returns (ITR) and your latest salary slips. If you are an entrepreneur, your audited balance sheets are mandatory. The insurer wants to ensure you are not over-insuring yourself. They look at your age, your current liabilities, and your future earning potential. You will also undergo a comprehensive medical check-up, including blood tests, ECG, and sometimes even a TMT (Treadmill Test).

The GST Relief Advantage

The cost of high-value insurance recently became more manageable. The GST Council has moved to exempt pure term insurance premiums from the 18 percent GST. On a high premium plan, this is a massive saving. Imagine a premium of 1 lakh rupees. Earlier, you paid 18,000 rupees as tax every year. Over 30 years, that was 5.4 lakh rupees gone. Now, that money stays in your pocket. This makes pure term insurance even more attractive compared to investment-linked plans where GST might still apply on certain components. It simplifies your financial planning significantly.

Protecting the Payout from Creditors

If you are a business owner, a 5 crore payout is a tempting target for creditors. If your business fails, they could try to claim your insurance money. You can prevent this using the Married Women’s Property (MWP) Act. When you buy the policy, you simply sign an addendum. This creates a trust. The 5 crore rupee payout can then only be accessed by your wife and children. No court, no creditor, and no relative can touch it. It is an ironclad way to ensure your family’s lifestyle stays protected even if your business liabilities spiral out of control. This is a must-have for every early-stage entrepreneur taking on personal debt for their startup.

Why Pure Term Wins Over Endowment

Endowment plans for high sum assured values often have massive premiums. These easily cross the 5 lakh rupee threshold. When they mature, you pay tax on the gains. Pure term insurance is lean. It is efficient. You get the highest possible cover for the lowest possible price. By keeping your insurance and investments separate, you avoid the Millionaire Tax on your protection plan. Use the money you save on premiums to invest in tax-efficient instruments like Equity Linked Savings Schemes (ELSS) or your PPF. OneAssure helps you compare these nuances so you don't end up with a policy that creates a tax headache later. Stick to the basics. Buy cover for protection, not for returns.