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Basic Guide To Understanding Life Insurance Maturity Benefits

Updated On Jul 13, 2021

Life insurance is one of the best ways in which you can secure the financial standing of your loved ones in case of an unfortunate event such as your untimely demise, permanent and total disability or the diagnosis of a critical illness. Since it is difficult to place a value on one's life, the amount offered as compensation under life insurance is calculated based on the potential lack of income so that your loved ones can live with the standard of living even in your absence.

Usually, the benefit under a life insurance plan is offered as a death benefit in case of an unfortunate event of the life assured’s death or as the maturity benefit if the life assured survives the entire policy term. In this article, we will discuss the maturity benefit in detail.

Understanding Life Insurance Maturity Benefits

As the name suggests, maturity benefit is payable on the maturity of the plan i.e. at the end of the plan’s policy term. Different life insurance plans offer different options for the payout of the Maturity Benefit. You can either receive it as a lump sum or by way of regular instalments on a yearly, semi-yearly, quarterly, or monthly basis.

Features of Life Insurance Plans With Maturity Benefits

Below are some of the common features of life insurance plans with maturity benefits - 

  • The age of entry for these plans is usually 18 years.
  • There are payment conditions for premium payments that range between limited pay (predetermined number of years), single pay (upfront), to daily pay (throughout the term).
  • The maturity of the policy ranges from one policy to another (could be 25 years, 65 years, or even whole life).
  • Premium charges can be made on a monthly or annual basis, as agreed.
  • The policy period ranges from 5 years to 30-35 years.
  • The coverage includes both maturity and mortality benefits.

How Much is the Maturity Benefit?

The amount of maturity benefit depends on the type of life insurance purchased. Following are the usual maturity benefit payout for different types of life insurance plans - 

  • Term Insurance - Normally, a term insurance policy does not give a clear maturity benefit to the policyholder. They have death insurance only if the policyholder dies during the policy period. Therefore, if any purchaser/policyholder wishes to have a maturity gain, he/she can opt for a TROP (Term With Return of Premium) package.

  • Unit-Linked Insurance Plan - ULIPs are financial instruments that give the policyholders the value of both life protection and wealth creation. The maturity benefit under these plans is generally payable as the fund value of your investment as on the date of plan maturity.

  • Endowment Plan - Under these plans, upon survival until the completion of the policy term, the policyholder usually gets the sum assured along with due bonus as the Maturity Benefit, post the payment of which the plan stands terminated.

  • Savings Plan/Money-Back Plans - A certain percentage (usually 20%) of the sum assured is paid to the Life Assured for survival either as a lump sum or by way of regular instalments as chosen by the policyholder.

Do All Life Insurance Plans offer Maturity Benefit?

No. Pure term life insurance plans do not have a maturity value. Only the endowment, the money back, the ULIP, and the Term Life with the Return to Premium Payment (TROP) plans provide maturity benefits. Simple term life insurance premiums are intended only for cover and usually do not offer you any payments in case you live the full term of the policy.

Are There Any Tax Benefits Available With Maturity Benefit?

Maturity benefit proceeds are eligible for a tax exemption under Section 10 (10D) of the Income Tax Act, subject to a condition that that the plan’s premium does not exceed 10% of the sum assured in any of the years during the policy term.

The premiums paid towards ULIP, Endowment, and Term Life with the Return to Premium Payment (TROP) also qualify for tax deductions under Section 80C of the Income Tax Act. 

To Conclude

There are a number of term plans providing different kinds of maturity benefits. It is on us to decide which term plan with maturity benefit to go with. Maturity benefits can be received by you either as a lump sum payment or in regular instalments. Thus, they can help you meet heavy financial requirements if any or can also serve as a regular source of income.

Also read 

Tax Implications on Maturity Benefit From An ULIP

Benefits Of Term Life Insurance Plans & Policy

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.        

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