Buying life insurance in Pakistan isn’t just about protection — it’s one of the most powerful tax-saving tools available to salaried and business individuals. Under the Income Tax Ordinance 2001, you can claim a tax credit on premiums paid to State Life and other SECP-approved insurers. Here’s how the numbers work in tax year 2026.
The relevant sections
- Section 62 — Tax credit for investment in shares, sukuks, and life insurance premiums.
- Section 63 — Tax credit for approved pension fund contributions.
How the tax credit works (illustration)
Say you are a salaried individual earning Rs 2,400,000/year, in the 25% tax slab, paying an annual life insurance premium of Rs 100,000.
- Eligible premium is the lower of:
- Actual premium paid = Rs 100,000
- 20% of taxable income = Rs 480,000
- Rs 5,000,000 (cap)
→ Eligible = Rs 100,000
- Tax credit = eligible × average tax rate. If your average tax rate is ~15%, credit = Rs 15,000.
- Your effective net premium becomes Rs 85,000 for Rs 100,000 of cover.
What counts as eligible?
- Life insurance premiums (endowment, term, whole life) paid to a Pakistan-registered life insurer.
- Health insurance premium (up to 5% of income) under separate sections.
- Pension fund contributions under Section 63 (up to 20% of income).
What does NOT qualify
- General insurance (car, home, travel).
- Group insurance premiums paid by employer.
- Foreign-currency policies issued outside Pakistan.
How to claim your tax credit
- Get a tax certificate from your insurer (State Life issues these annually).
- Enter the eligible premium under the “Tax Credits” section of your income tax return.
- Attach the certificate as proof in case of audit.
- Verify the reduction in your total tax liability.
Pro tip: combine sections 62 and 63
Salaried professionals can layer:
- Life insurance premium (Section 62) — up to 20% of income
- Voluntary pension scheme (Section 63) — up to 20% of income + extra 2% per year above age 41
Together, this can shave Rs 60,000–150,000 off your annual tax bill for a typical Rs 2M+ salaried Pakistani.
Frequently asked questions
Is the maturity payout also tax-free?
Yes — under the Second Schedule of the Income Tax Ordinance, maturity proceeds and death benefits from a life insurance policy are tax-free in the hands of the policyholder/nominee.
What if I stop paying premium mid-way?
You lose the credit for future years but the credit already claimed in prior years is not clawed back.
Can I claim credit for my spouse’s policy?
No — only premiums you pay on your own life (and children under some conditions) are eligible.
Get a State Life tax certificate — talk to our advisor or check our premium calculator to see your after-tax cost.