Maturity benefit is the amount you receive after your insurance policy reaches its term. And in some cases, the maturity amount is tax exempted. So, it can be said that the amount a policyholder finalises while signing up for the policy in terms of "Sum Assured" is a maturity benefit. However, the benefit may sometime include other additions depending on the type of policy.
Let us understand more about it in detail.
When a policy attains maturity, the insurance company pays a lump sum as the maturity benefit. If your insurance policy has a 20-year term, you will receive a payout at the end of the 20th year. The maturity amount comprises the premiums paid up to that point plus any additional benefits. However, you should pay all the premiums to be eligible for the maturity benefit.
The amount guaranteed and any incentives your life insurance company gives you upon your survival during the policy's term are known as the maturity benefits of the term plan. As a result, they transform standard life insurance policies into tools for saving. Term insurance, on the other hand, provides only protection—it delivers no maturity advantages. For a predefined period of time, you must pay a set premium. In the event that a catastrophic incident happens within the designated policy period (term of the policy), your nominee will be compensated in accordance with the terms of your plan.
Term insurance plans do not provide maturity benefits since they do not have saving components. The explanation is that the way term plans are structured, you have to pay fewer bifurcations of premiums. Typically, life insurance companies split your premiums into two parts:
One pays the expense of supplying the life insurance sum.
The second is related to wealth creation (savings portion).
However, with term insurance, the second component is not present. The insurer uses every penny you pay, excluding a few small administrative fees, to safeguard your financial future. For this reason, maturity benefits are not offered by term plans. Nevertheless, compared to other life insurance policies, the premiums for term plans are reasonable given the greater life cover they offer.
The insured's lawful heirs receive the maturity benefits if they pass away after the policy's maturity date but before the policy's discharge procedure.
There are different types of life insurance policies, and all of the policies do not offer maturity benefits. While choosing a life insurance policy, you must evaluate your financial needs and find a plan that suits you the best.
Listed below are a few life insurance policies that offer maturity benefits:
Term plans do not offer a maturity benefit as these are pure protection plans. It offers death benefits only. However, some term plans offer the premiums back to you if you survive the policy term.
Savings plan like Canara HSBC Life Insurance iSelect Guaranteed Future offers life cover with guaranteed returns at maturity. For example, you pay ₹20,000 per month for 10 years. You will get covered for 20 years and at the end of 20th year, get ₹66.93 Lakhs.
Such plans also act as a corpus builder for your retirement. It guarantees the maturity benefit, which you can use to fulfil your life goals.
These are market-linked insurance plans in which a part of the premiums are put towards paying for the life cover, and the remainder is invested in market-linked investment choices that yield returns. A maturity benefit is given under ULIPs if you survive the policy term.
Life insurance policies are financial instruments that provide protection and an option to protect your future with the maturity benefits. Choose a policy depending on your financial goals to help you fulfill your dreams.
The amount that the insurance company pays out when the policy term finishes and the policyholder survives is known as the maturity benefit of a life insurance policy. Usually, this total consists of the guaranteed amount plus any earned bonuses and any final bonuses. The calculation and taxation of maturity benefits depend on the type of investment or insurance product. Read along to find out more about maturity benefits calculation and taxation.
Maturity benefits in insurance refer to the lump-sum payment an insurance company makes to the policyholder when their insurance policy reaches its term or maturity date. This payout typically includes the premiums paid over the policy term, along with any applicable bonuses or interest accrued.
Obtaining maturity benefits is easy, typically involving the submission of a policy release form and required documentation to the insurance provider. Policyholders should carefully review the terms and conditions of their policy to understand the maturity benefit details and ensure a smooth claim process. Maturity benefits can be a significant financial milestone, making life insurance an essential component of comprehensive financial planning.
Accrued Interest: Interest that has accrued but not yet been paid on a loan or other financial obligation is referred to as accrued interest.
Lawful heir: A person or group of people legally entitled to inherit the assets and property of a deceased person, either by virtue of a valid will or in accordance with applicable succession rules.
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This is dependent upon the type of policy and the insurance company. Rather than a single lump sum payment, some plans enable periodical maturity distributions depending on installments. Before moving forward, it is best to clarify this with your insurance company and/or agent.
Section 10(10D) of The Income Tax Act, 1961 allows policies to be selected for tax-free maturity advantages.
TDS at the rate of 5% shall only be deducted if the payer's income portion of the life insurance policy payment is above Rs. 1 lakh in a fiscal year. If the maturity amount is more than Rs. 1 lakh, 5% TDS is subtracted before the maturity proceeds are paid.
You may use the below formula to calculate the maturity benefit of your insurance plan: Maturity Benefit = Sum Assured (On Maturity) + Accrued Bonuses + Any Final Bonus
According to the recent Budget, any life insurance policies with maturity issued after April 1, 2023, and with an annual premium of more than ₹5 Lakh (apart from unit-linked insurance policies, or ULIPs) would be subject to taxation.
The nominee is not required to pay taxes on the maturity payout from a life insurance policy under Section 10(10D). As long as the premium paid does not exceed 10% of the sum assured, the maturity benefit the policyholder receives is tax-exempt.
