Maturity benefits are one of the most attractive features of life insurance policies. Unlike term insurance, which provides a death benefit to beneficiaries, policies with maturity benefits ensure that policyholders receive financial payouts upon policy completion. Understanding how these benefits work, their advantages, and the factors that influence them can help you make an informed decision about your insurance needs.
What is a Maturity Benefit?
Maturity benefit refers to the lump sum amount paid to the policyholder at the end of the policy tenure, provided that the policyholder has survived the entire policy term. This payout usually includes the sum assured and any applicable bonuses, making it an essential component of endowment, money-back, and unit-linked insurance plans (ULIPs).
How Maturity Benefits Work
- The policyholder pays premiums throughout the policy term.
- If the insured person survives the tenure, they receive the maturity amount as per the policy terms.
- The maturity benefit may include additional bonuses such as reversionary or terminal bonuses, depending on the insurer and policy type.
- Tax benefits may also apply under Section 10(10D) of the Income Tax Act, 1961, in certain conditions.
Types of Insurance Policies with Maturity Benefits
Several types of life insurance policies offer maturity benefits. Understanding these policies can help you choose the right one for your financial goals.
1. Endowment Plans
Endowment plans combine life coverage with savings. The insured gets the sum assured plus bonuses if they survive the policy term.
2. Money-Back Plans
Unlike endowment plans, money-back policies provide periodic payouts (survival benefits) before the policy matures, along with a final maturity benefit at the end.
3. Unit-Linked Insurance Plans (ULIPs)
ULIPs offer investment-linked benefits along with life insurance coverage. The maturity benefit depends on market performance and fund selection.
4. Whole Life Plans with Maturity Benefit
Some whole-life policies offer maturity benefits if the insured reaches a predefined age, such as 80 or 100 years.
5. Pension Plans with Maturity Benefits
Retirement-oriented insurance plans provide a lump sum or annuity payout upon maturity, ensuring financial security post-retirement.
Components of Maturity Benefit
1. Sum Assured
This is the guaranteed payout amount mentioned in the policy, which the insurer commits to pay upon maturity.
2. Accrued Bonuses
Some policies, such as endowment and money-back plans, accumulate bonuses over time, including:
- Reversionary Bonus: Declared annually and added to the sum assured.
- Terminal Bonus: A one-time bonus paid upon maturity.
3. Loyalty Additions
Some insurers offer loyalty additions to long-term policyholders as an extra benefit upon maturity.
4. Fund Value in ULIPs
For ULIPs, the maturity benefit is based on the fund value at the end of the policy term, influenced by investment performance.
Benefits of Maturity in Insurance
1. Financial Security
Maturity benefits provide a substantial financial corpus, helping policyholders meet future expenses such as home purchases, education, or retirement planning.
2. Risk-Free Returns
Traditional endowment and money-back policies offer guaranteed returns, ensuring financial security without investment risks.
3. Tax Benefits
Under Section 10(10D) of the Income Tax Act, maturity proceeds are tax-free under certain conditions.
4. Encourages Savings Discipline
Insurance policies with maturity benefits encourage disciplined savings over an extended period.
5. Flexibility in Payouts
Some policies allow flexibility in receiving maturity proceeds as lump sums, annuities, or staggered payments.
Factors Affecting Maturity Benefits
1. Policy Term
Longer policy terms generally result in higher maturity benefits due to compounded bonuses.
2. Type of Plan
ULIPs offer market-linked returns, while endowment and money-back plans provide guaranteed benefits.
3. Bonus and Additions
The insurer’s profit-sharing mechanism impacts the final payout in participating policies.
4. Premium Amount
Higher premiums lead to greater benefits, provided the policy is maintained throughout the term.
5. Market Performance (For ULIPs)
ULIP maturity benefits depend on fund performance, which fluctuates with the stock market.
How to Claim Maturity Benefits?
Filing a claim for maturity benefits is a straightforward process. Follow these steps:
- Receive Intimation from the Insurer:
- Insurance companies notify policyholders about the upcoming maturity date in advance.
- Submit Required Documents:
- Original policy document
- KYC details (ID proof, address proof, and bank details)
- Canceled cheque or bank account details for fund transfer
- PAN card (for tax verification if applicable)
- Processing and Payout:
- Once verified, the insurer disburses the maturity amount to the policyholder’s account.
- Tax Considerations:
- Ensure compliance with tax rules to maximize your post-tax benefits.
Common Misconceptions About Maturity Benefits
1. All Life Insurance Policies Have Maturity Benefits
Term life insurance does not offer maturity benefits unless it is a return-of-premium variant.
2. Maturity Benefits Are Always Tax-Free
Tax exemption applies only if premiums do not exceed 10% of the sum assured in policies issued after April 1, 2012.
3. ULIP Maturity Benefits Are Guaranteed
ULIP returns depend on market performance and are not fixed.
4. Higher Premiums Always Mean Higher Maturity Benefits
While premium amounts influence benefits, policy type and insurer bonuses also play a crucial role.
Also Read: What Is An Annuity And How Does It Work?
Conclusion
Maturity benefits in insurance provide a financial cushion, ensuring long-term savings and investment growth. Whether through endowment plans, money-back policies, or ULIPs, these benefits help policyholders achieve financial security and future goals. Understanding the terms, conditions, and factors influencing maturity benefits enables better decision-making while selecting an insurance plan.
By carefully evaluating your needs, premium capacity, and risk tolerance, you can choose a policy that maximizes maturity benefits while offering adequate life coverage.
FAQs
1. What happens if I don’t claim the maturity benefit?
If a maturity claim is not filed, the insurer holds the amount in a policyholder account until claimed, but interest may not be applicable.
2. Can I reinvest my maturity benefit in another policy?
Yes, you can reinvest the proceeds into new insurance plans, ULIPs, or other investment options.
3. Are maturity benefits taxable?
Maturity benefits are tax-free under Section 10(10D) if the annual premium does not exceed 10% of the sum assured.
4. What happens if I surrender my policy before maturity?
Surrendering a policy before maturity results in a lower payout, often based on the surrender value formula provided by the insurer.
5. Can I change my payout option for maturity benefits?
Some policies offer flexible payout options, but this must be decided at the time of policy purchase or before maturity.