Life insurance is not just a safety net for your family; it’s also a financial instrument that offers several advantages. One of the most compelling features of certain life insurance policies is the maturity benefit, which ensures that policyholders receive a lump sum payout upon the completion of the policy term.
Let’s dive into what maturity benefits are, how they work, and why they’re an integral part of life insurance planning.
What is the Maturity Amount in Life Insurance?
The maturity amount is the amount you receive from the insurance company when their life insurance policy ends. Of course, this benefit is given only if no claims have been made during the policy period.
The calculation of the maturity amount depends on the type of policy and its terms. However, generally, it consists of three components- sum assured, bonus, and loyalty additions.
- Sum Assured: It is the payout amount specified in the policy at the time of purchase.
- Bonuses (if applicable): The company provides additional payouts such as reversionary or terminal bonuses as declared.
- Loyalty Additions (if applicable): Occasionally, the insurance company provides some extra benefits to long-term policyholders.
Also Read: How to Choose the Right Life Insurance Policy?
How to Avail Maturity Benefit?
If your life insurance policy term has ended, here are the steps you can follow to get your maturity benefit.
1. Check The Maturity Date of Your Policy
Go through your insurance policy documents to ensure that your policy provides maturity benefits. You will also find the maturity date and how to compute the maturity value in the papers. This is the date when you become eligible to receive the maturity benefit. If your policy has matured, check if your insurance company has sent any intimation about your payout.
2. Submit Documents for Verification
You must submit the required documents to the insurance company. Usually, the following documents are needed.
- The policy document.
- A duly filled and signed maturity claim form.
- Your identity and address proof.
- Your bank account details for direct transfer of the maturity amount.
3. Processing and Disbursal
The insurance company would verify your documents and form. If everything is complete and correct, it will process your claim. Soon the insurer will disburse the maturity amount, usually via direct transfer to your bank account. Please keep track of the payment and verify it against the expected sum. Don't forget to consider the tax implications of your maturity amount.
Various Types of Life Insurance Plans with Maturity Benefits
Let's look at the life insurance plans that provide maturity benefits to the policyholders.
1. Endowment Life Insurance Plans
Endowment plans combine the benefits of insurance coverage and investment. At the end of the policy term, the insurance company pays a lump sum maturity amount. Insurers often pay reversionary and terminal bonuses, which increase the maturity amount or the death benefit. Unlike market-linked plans, endowment policies are not subject to market volatility, making them a safe investment option, especially if you are a risk-averse person.
2. Term Return of Premium (TROP) Plans
This type of term insurance refunds all premiums paid if the policyholder survives the policy term. During the term, it provides life insurance coverage as well. At the end of the policy term, the insurance company refunds the total premiums paid excluding taxes and rider charges. If you are looking for affordable life coverage with a guaranteed refund if the coverage isn’t used, this plan is ideal for you.
3. Unit-Linked Insurance Plans (ULIPs)
Unit-linked insurance Plans also blend investment with life insurance. The insurance company invests the premiums in equity, debt, or hybrid funds. The maturity value depends on market performance, offering the potential for higher returns. If you are willing to take a risk and are looking for life insurance plus investment options, this plan may be right for you.
Life insurance policy maturity amount taxable under which head?
Did you know that your entire maturity amount can be exempted from income tax? Section 10(10D) of the Income Tax Act exempts the maturity amounts (including bonuses) of certain insurance policies from tax. To claim this tax benefit, your policy must satisfy the following conditions.
The premium should not exceed a certain percentage of the sum assured.
- For policies issued on or after April 1, 2012, the premium paid in any policy year should not exceed 10% of the sum assured.
- For policies issued before April 1, 2012, the premium paid should not exceed 20% of the sum assured.
- For policies issued for disabled dependents covered under Section 80DD after April 1, 2013, the premium paid should not exceed 15% of the sum assured.
The insurance policy should not be a keyman insurance policy to be eligible for this exemption.
If your policy does not satisfy these conditions, the maturity amount will be taxable. However, if the nominee receives the amount after the death of the policyholder, there would not be any tax liability.
Wrapping Up
You must understand the concept of maturity amount in life insurance because the money has tax implications and it will influence your financial planning. By knowing how the maturity amount is calculated, the types of life insurance plans offering maturity benefits, and the associated tax advantages, you can select a policy wisely. Take the time to evaluate your options, understand the terms, and ensure your chosen policy matches your financial goals.
Frequently Asked Questions on Maturity Amount in Life Insurance
What is the maturity period of life insurance policies?
The maturity period is the duration of the policy, specified at the time of purchase, after which the policy ends, and the maturity amount becomes payable if the policyholder survives. It typically ranges from 5 to 30 years, depending on the policy type.
Can I withdraw my life insurance money before maturity?
Yes, some policies allow partial withdrawals or loans against the policy after a certain lock-in period. However, early withdrawals may reduce the final maturity benefit or come with penalties, depending on the policy terms.
How to calculate maturity benefit?
The maturity benefit is calculated as:
Maturity Benefit = Sum Assured + Bonuses (if applicable)
The sum assured is the guaranteed payout, and bonuses are additional amounts declared by the insurer during the policy term. For ULIPs, the benefit depends on the fund's market performance.
