- Date : 18/05/2018
- Read: 5 mins
Thought life insurance only gives financial support in case something goes wrong? No. It can grow your money too.
Buying life insurance is a necessity to protect your loved ones in case of death, accidents or disabilities that lead to a loss of income. Though you cannot put a monetary value to a human life, the compensatory amount is determined based on the loss of future income. That is why the term ‘sum assured’ stands for the guaranteed amount that you or your family will receive in case the policy-holders passes away or is disabled.
However, chances are high that the policy-holder completes the term period, and nothing unfortunate takes place. Will the insurance company pay back the policy-holder the premiums he has paid over the years? What about the other life goals you want to achieve, like the education of your children, their marriage, or even a world trip for you and your family?
Under traditional term life insurance policies, there are no paybacks. But if you are looking for a life advantage on an insurance policy, look for a policy with maturity benefits. Most people are unaware of the additional benefits apart from the death and disability benefits.
Most insurance policies with maturity benefits are for a period of 5, 10, 15 or 20 years and not only will your family get the cover in case of a misfortune, but if you survive through the complete policy term, there are advantages to avail. A win-win situation for you and your family.
As compared to term life insurance policies, where you lose the advantage of the paid premiums, if you survive the tenure of the policy, maturity-benefits policies ensures you returns.
Types of Maturity Benefit Policies
- Term Life with Return of Premium or TROP plans- These plans are Term Plans with the additional benefit of premiums being returned to the policy holder at the end of the term if the insured survives the policy term.
- Endowment plans- These plans combine the benefit of investment and insurance. Funds are usually invested in debt funds so returns are not too high, but the risk is also very manageable. The sum assured (i.e. the sum your family receives in case something happens to you) is usually not very high.
- Unit Linked Insurance Plans- Like Endowment plans, these are financial products that give the investor the benefit of both investment and insurance. Since it is a market linked product, potential for risk is higher than traditional life insurance products, and there are also some associated charges. However, these plans give policy holders equity exposure that grows their wealth at a much higher rate of return. These plans also allow partial withdrawals of money which can be used to tackle financial needs as and when they arise.
They help you get the monetary benefit of guaranteed returns (in case of TROP & Endowment plans) since you get the refund of the premiums on maturity of the policy, and of course if the policyholder dies within the period, then death benefits are applicable.
Advantages of Maturity Benefit life insurance
The policyholder can claim the benefits after the policy matures, and the insurance company provides a fixed amount (for traditional products) and a variable amount (for market linked products like ULIPs) after the plan tenure is completed. However, this is only a possibility when the policy is being continued as per the contract terms. Usually, the maturity benefits include a sum of the premiums that have been paid till a fixed date and any other benefits as stated in the policy document.
Initially, the maturity benefits are limited to the total amount paid in premiums, but the amount gradually increases every year, which is why these plans are considered an investment avenue as well as insurance. There is a steady increase in the corpus and at the end of the maturity term the insurance company pays-out the total amount.
Key features of term plans with maturity benefit
- Entry age: 18 years to 65 years
- Paying terms for premiums:
- limited pay (pay for a previously decided number of years)
- single pay (pay once)
- regular pay (pay throughout the policy term)
- Maturity of policy: 25 years/65 years to complete life- depends on the policy
- Premium payments: monthly/yearly
- Policy term: 5 years to 30/35 years
- Coverage: Maturity and death benefits
Death benefits: If the policy-holder dies within the tenure of the policy, the legal or designated nominees get the death benefits
Maturity benefits: Unlike traditional life insurance, term insurance with maturity benefit policies offer total refund of premiums and additional bonus to the policy-holder, if the policy is continued till the end of the term.
Tax benefits: As per the Indian Income Tax Act, the policy-holder is eligible to get tax benefits on the premiums paid for maturity benefits-related life insurance plans. These deductions are offered under section 80C (provided the premium paid is not more than 10% of actual sum assured for policies issued on or after 1.4.2012 or not more than 20% of actual sum assured for policies issued between 1.4.2003 and 31.3.2012) and section 10D of the Act.
While 80 C offers deductions against premium paid, 10 D allows the recipient to receive tax-free sum assured and bonus in case of maturity, surrender of policy or death, subject to some conditions. Most of these conditions are related to the percentage of premium paid in context of the actual sum assured and must be studied carefully while buying insurance to avoid attracting tax during the policy term or later.
Additional Cover: Some of the policies offer additional riders of Accidental Death or Critical Illness but it varies depending on the insurance company.
It’s evident, thus, that life insurance doesn’t just assure you peace of mind for unfortunate events, but can also help you achieve your life’s goals through much needed financial support.