Yes, health insurance policies come with attractive income tax deduction/exemptions under Section 80D of the Income Tax Act, provided you pay the premium by cheque or DD from your bank. You can claim exemption on premium paid for self, spouse, dependent children and parents.
For the financial year 2014-15, a deduction up to Rs.15000 was allowed. If the insured/spouse is 60+ years, the deduction is Rs.20000. Additional deduction for parents is Rs.15000 if less than 60 yrs and Rs.20000 if over 60 years old. Maximum deduction allowable is Rs.40000. There is also a deduction for preventive health checks.
For the financial year 2015-16, the deductions are raised to Rs.25000, with deductions for senior citizens at Rs.30000. For uninsured senior citizens 80 years and above, medical expenses deductible are Rs.30000. Total deductions for parents is at Rs.30000.
For more information, refer to Section 80D of the Income Tax Act.