Life Insurance With Maturity Benefits

What are the Maturity Benefits with a Life Insurance Policy?

The term ‘maturity benefits’ refers to the life assured having the advantage of receiving lump sum amount when the policy reaches its maturity, if he/she survives the policy tenure, provided all due premiums are paid. The maturity benefit you are eligible to receive depends on the kind of life insurance policy you purchase and the policy terms and conditions. While adding a maturity benefit aspect to your life insurance plan may increase your premium to an extent, the advantages it offers may prove to be worth in the long run. The money you receive on maturity can help you meet the long-term financial goals you may have set.

Let’s take Aditya’s example. He bought a term insurance plan with return of premium feature that offers maturity benefits, and a tenure of 15 years. Fortunately, no tragic event happened with him in those years, and the plan matured at the end of 15 years. This made him eligible to receive the maturity benefits from the plan. He used the money received to expand his business.

 

Life Insurance Plans With Maturity Benefits

The amount of money you receive on your policy’s maturity depends on the type of policy chosen. Let’s take a look at some types of life insurance that offer maturity benefits of varying kinds:

 

1. Term insurance with Return of Premium (TROP)

   If you are looking for an affordable policy with maturity benefits, then a Term Insurance with Return of Premium plan can be the suitable option. Pure Term insurance plans offer only protection, that is, there is no saving or investment element attached to them. Hence, they are relatively affordable.

   With an added Return of Premium feature, you can receive the sum of all the premiums paid when you outlive the plan’s maturity, less the applicable deductions. The premiums for a term plan with the ROP feature are nominally higher than a pure term plan. You can get an estimate of the same with the help of a term insurance calculator.

   One of the major term insurance tax benefits is that the maturity proceeds from a term plan are exempted from taxation under Section 10 (10D) of the Income Tax Act of 1961 if the annual premium does not exceed 10% of the death sum assured. This is applicable for policies bought after 1^st April 2012. For policies bought before 1^st April 2012, the premium should not exceed 20% of the death sum assured.

   
   

2. Endowment plans

   Endowment plans refer to life insurance policies that have a savings component linked to them. The premiums of your endowment plans are used to provide a life cover as well as accumulate money which turns into a larger corpus as the policy years go by. The policyholder/nominee receives the accumulated wealth at policy maturity.

   The savings in an endowment plan are accumulated via low-risk investments and hence, these plans are relatively safer than the ones investing in equity markets.

   Premiums of up to 1.5 lakhs per year paid for endowment plans are deductible under Section 80C of the Income Tax Act, 1961 (the Act), subject to the terms and conditions stated therein³. The maturity benefits are also tax-free under section 10(10)D of the Act, if the death sum assured is at least 10 times the annualized premium in all years, subject to the terms and conditions stated in the Act³.

   
   

3. Unit-linked Insurance Plans (ULIPs)

   If you are looking for a life insurance policy with maturity benefits in the form of market-linked returns, then ULIPs can be the way to go. These are insurance products that offer life insurance as well as investment opportunity under one product.

   One can choose to invest in equity, debt, or even a combination of both. Depending on the asset class you choose, your investment may be exposed to a certain amount of risk. Equity instruments may mean more risk, but they may yield higher returns as well, basis market performance. Debt instruments may be a better option for those with a low-to-moderate risk appetite.

   As per an amendment in Budget 2021, the maturity proceeds (excluding death proceeds) from a ULIP are taxed as capital gain if the aggregate annual premium of the policy in any year goes above the limit of Rs 2.5 lakhs² and policy is issued on or after 1 February 2021. Policyholders with their annual premiums below the given limit can enjoy ULIP tax benefits in the form of tax-exempted proceeds, subject to satisfaction of conditions as mentioned in Section 10(10D) of the Act.

   
   

4. Money Back Plans

   If you want life cover along with steady income, a money-back plan is something to consider. Such life insurance plans offer periodic payouts—typically a fixed percentage of the sum assured—at regular intervals during the policy term, provided the policyholder is alive. These are known as survival benefits. If you survive the complete term, you’re also eligible for the remaining amount. If you have chosen a participating policy, you might also get bonus (if declared) with the policy benefits on maturity. In case of an untimely death, your family still gets the entire sum assured, irrespective of any money you may have already taken.

   For instance, say you purchase a ₹10 lakh policy for 20 years, which pays 20% of the sum assured as money back benefits after every 5 years. In this policy, you will get ₹2 lakh at the end of the 5th, 10th, and 15th years. At the end of the 20th year, you receive the rest of ₹4 lakh. Your dependents will still receive ₹10 lakh in case of an untimely death before the maturity period.

   Note: The example is for illustrative purpose only

   This two-tier structure gives both protection cover and liquidity over the policy duration. You can even borrow against these policies when required if the plan has acquired a surrender value. Additionally, they are tax-friendly: premiums are deductible under Section 80C, and the maturity benefit is tax-free under Section 10(10D), with conditions. This combination of regular income and insurance makes money-back plans a sound option for goal-based saving.

   Note that for you to be eligible to enjoy the maturity benefits with any life insurance plan, you must pay all the premiums on time. You must also read the policy wordings before proceeding with the purchase so that you are aware of the terms and conditions that need to be met.

   
   

Other Benefits that come with Life Insurance

Along with maturity benefits, there are other advantages that one can enjoy with life insurance, such as:

• Additional financial protection

  To level up the financial protection for yourself and your loved ones, you can opt for riders. These are add-ons, such as critical illness rider, waiver of premium rider, and so on, also available with life insurance with maturity benefits. These can be opted on payment of additional nominal premium. These offer extra financial compensation if the covered event were to occur during the policy term.

  
  

• A backup for liabilities

  As long as you are earning, you may be able to pay the EMIs of your debts. However, if you were to breathe your last, this liability can fall on your loved ones’ shoulders. With the sum assured from a life insurance plan, it can help them handle such liabilities effectively.

  
  

• Peace of mind

  It is easier to have peace of mind when you know that your loved ones would have financial security even when you are no longer around.

  
  

• Goal-Oriented savings

  A life insurance plan with maturity benefit is not just financial protection but also a disciplined savings tool. It allows you to set aside money regularly and achieve long-term goals like children’s education or retirement. Over time, these plans instil financial discipline and help build a sizeable corpus.

  
  

• Tax advantages

  A major advantage of choosing a life insurance with maturity benefit is taxation relief. Subject to provisions under Section 10(10D), the maturity amount can be tax-free, allowing you to enjoy higher effective returns. Additionally, premiums for life insurance qualify for tax benefits under Section 80C.

  
  

• Added bonuses (if declared)

  Certain plans like endowment or money-back plans may offer annual or terminal bonuses if they are issued as participating policies. These bonuses are added to the maturity or death benefit, increasing the overall payout.

  
  

• Flexible payout choices

  You can decide how to receive the maturity benefits. You can opt for a lump sum at once or staggered payments , depending on the plan .

  
  

Key Factors That Affect Maturity Benefits

When you purchase a life insurance policy with maturity benefit, the final payout depends on several factors, some of which are listed below:

• Duration of the policy

  The term of your policy is one of the key determinants of the maturity pay-out. Longer policy durations allow more time for premiums to accumulate and bonuses (if applicable) to be declared, especially in participating plans like endowment or money-back plans. Thus, choosing policy tenure wisely is important.

  
  

• Premium paid

  The amount of your premium payments has a direct impact on the maturity benefit. In traditional plans, higher premiums typically lead to a higher sum assured and larger bonuses, resulting in a greater maturity payout. In the case of ULIPs, premium payments contributes to the fund value which can grow depending on market movements. .. Having a consistent payment scheduleensures your policy stays active and allows your investments or bonuses to grow steadily over time.

  
  

• Applicable bonus rates

  Participating life insurance plans** tend to make annual or terminal bonuses (if declared). Such bonuses (if declared) get credited to the assured amount and increase the maturity value. If an insurer announces higher rates of bonus, your returns automatically increase.

  
  

• Performance of investments

  In market linked life insurance plans , like ULIP plans, the maturity benefit is based on how the market performs. If your market linked funds perform well then it can increase your maturity value, while poor performance can reduce pay-out. Keeping an eye on fund performance enables you to connect your market linked investments with your financial objectives.

  
  

• Charges on policy surrender

  If you cancel or surrender your policy prematurely, insurers typically charge surrender fees. These reduce the surrender value. To prevent such losses, experts recommend holding out until maturity unless there is some extreme financial crisis.

  
  

How to Claim Maturity Benefits in Life Insurance?

When your life insurance policy with maturity benefit comes to an end, you are eligible to get the guaranteed* payout. The following are the steps to obtain maturity benefits in life insurance:

• Insurers usually send a maturity intimation letter some weeks prior to the end of the policy. The letter contains the payable amount and the documents needed.
• You have to complete the maturity claim form issued by the insurance company. You can fill the form digitally too via the insurer’s website. Submit the form along with the required documents like original policy bond, identification proof, residence proof, cancelled cheque, and bank details. They are needed in order to authenticate your identity and to make correct fund transfer.¹
• The insurance firm confirms the information and ensures all premiums are paid. In case there are no dues or discrepancies, the claim process proceeds.
• Once confirmed, the maturity amount in life insurance is credited to your registered bank account.
   

Key Takeaways

• A life insurance with maturity benefits offers financial security together with a maturity pay out at the end of the policy duration.
• Such plans help combine financial protection with disciplined savings, making them useful for long-term financial goals.
• Policyholders may select between variants such as endowment plans, term plans with return of premiums (TROPs), ULIPs, or money-back plans for varied purposes.
• The maturity benefit in life insurance includes bonuses(if declared), tax advantages, and flexible payment options.
• Factors like policy duration, premium value, bonus (if declared) , and investment returns affect the ultimate payment.
• Claiming maturity benefits requires complete payment of premiums and timely submission of the claim form with valid documents.
   

Conclusion

Buying a life insurance plan with maturity benefits gives you dual benefits of insurance protection and savings. It allows you to save over time while remaining financially protected. The maturity benefit in life insurance serves as an economic shield, aiding in long-term objectives and providing peace of mind for the future.

 

FAQs

1. How to calculate the premium of a life insurance plan with maturity benefits?

   The premiums of life insurance plans are subjective and depend on several variables. Some common determinants of the premium are age, gender, medical history, smoking/drinking habits, and occupation amongst others. To get a premium estimate for yourself based on some common factors, you can use a life insurance calculator. The actual premium may vary.

   
   

2. Are there multiple payout options available with maturity benefits?

   This depends on the policy type and the insurance provider. Some plans allow for regular instalment-based maturity payouts rather than a lump-sum payment. It is preferred to get clarity regarding this with your insurance provider and/or insurance agent before proceeding.

   
   

3. When should one buy life insurance with maturity benefits?

   The sooner you buy a life insurance plan, the longer your money stays invested in, which helps in creating a larger corpus that you can receive during maturity, in certain types of plans.

   
   

4. What happens if you claim maturity benefits late?

   If you delay claiming maturity benefits, you get the maturity proceeds late. The sum remains safe, but the settlement occurs only after completing the formalities required by you.

   
   

5. Do all types of life insurance provide maturity payouts?

   No. Term insurance provides only life cover unless you choose the return of premium option. Endowment, ULIPs, deferred annuity, and money-back plans offer maturity benefits if the life assured survives the entire term.

Sources:

1. https://www.insurancesamadhan.com/blog/maturity-benefit-in-life-insurance/