Life insurance: Understand survival benefit, maturity benefit and death benefit

An account of life insurance benefits on survival, maturity, and death, and how to select a policy that’s right for you.

Those who seek peace of mind and wish to be prepared for any unforeseen eventuality should avail of a life insurance policy. The Insurance Regulatory and Development Authority of India (IRDAI) has mandated that all insurance companies in India give customers an illustration of the annual returns. This allows them to be better prepared as they can know the approximate rate of returns at the time of buying the policy. 

The illustrations specify two scenarios:

1. An approximate lower limit of interest (6%)
2. A higher limit of interest (10%)

However, the rate of returns is not guaranteed.

Choose your premium and payment method

• The illustrations explain the interest the customer earns from the first year through to the final year, or on maturity of the policy.
• The premium can be paid monthly (deducted directly from your monthly salary), bi-monthly, quarterly, half-yearly or annually, as per the choice of the policyholder.
• At the time of buying life insurance, one can choose a plan that best suits their needs.
• They can decide on the correct premium based on their earnings.

The 3 types of benefits

Survival benefit: Maturity of the policy in 40 years or the policyholder attaining the age of 80 years, whichever is later. The sums are paid in intervals to the policyholder. If the policyholder dies during the plan tenure, after receiving survival benefits, the full benefits are handed over to the nominees. 

Maturity benefit: The policyholder enjoys the full benefit of the insurance on attaining maturity, depending on the term mentioned, for example 80 years of age, or 40 years from the commencement of the policy, whichever is earlier. The duration of the maturity term varies and depends on what the insurance company offers.  The benefits of the policy for the nominees or survivors remain the same as mentioned at the time of buying the insurance. 

Death benefit: In this case, the survivors/next of kin or the nominees receive the emoluments due to the demise of the policyholder, from the time the policy commences. The sum assured plus all the bonuses are paid in a lump sum to the nominees.
Related: Maturity benefits: what you need to know when buying insurance

Bonuses
LIC declares a bonus at the end of a financial year based on the profits the business earns, a portion of which is passed on to the policyholder. A bonus once declared forms a guaranteed return for that year. An additional bonus may be declared as a reward if the premiums have been periodically paid over a certain period of time.

Additional benefits
These need to be bought in addition to the base insurance, such as burial cost or accident and dismemberment cost. They add utility and extra benefits to an insurance policy .

Guaranteed surrender value
The guaranteed surrender value is the amount guaranteed to the policyholder in the event that the policy is surrendered prior to maturity. The penalties are specified for surrendering. 

Related: Do not skip Accidental Death Benefit rider

5-point insurance checklist

Research before buying the right policy, then call an agent or speak to customer service to discuss the salient features of your chosen plan.
Thoroughly read the terms and conditions and make sure you are aware of the expenses you will have to make to service the policy.
One has 15 days to study and decide whether their purchase is ideal. A change is allowed if the customer is not comfortable with their current purchase, or is allowed a cancellation.
Decide on the most suitable premium paying options (monthly, bi-monthly, annually) before settling for one.
Don’t hide personal information like medical history, as making a claim can be difficult if this comes to light later. Be honest in filling out the medical criteria thoroughly.
Related: Why is Life Insurance one of the most preferred Investments with benefits

Last words

Life insurance is no doubt a necessity today.  We need to ponder at length on what kind of insurance we need to buy. Make sure you read about the different insurance policies available before buying one that’s ideally suited for you. Life insurance types simplified