Term Insurance Maturity Benefits: A Comprehensive Guide

 

No matter how old we are, there’s one concern that keeps us worried. What will happen to our loved ones if we die an untimely death? Here’s where term insurance plans can come to your rescue. Purchasing a term insurance plan will help you secure your family’s future in your absence.

What is a term insurance plan?

A term insurance policy is a pure protection plan that provides the insured with a life cover and pays the family a solid chunk of money in case the policyholder dies within the policy period. This lump sum death benefit can help the family cope with financial struggles, maintain the preferred standard of living, and take care of regular expenses and liabilities, as well as future life goals.

Maturity Benefits in a Term Insurance Plan

General term insurance plans don’t come with maturity benefits and pay only the death benefit in the event of the insured person’s untimely death within the policy tenure. There are also lump sum pay-outs in case of critical or terminal illnesses if the policyholder has opted for the respective riders. But there’s a category of term insurance called Term Plans with Return of Premium (TROP) plans which return the total premiums paid as the maturity benefit. This lump sum payout is made when the insured individual survives the policy term.

Key features of Term Insurance Plan with Maturity Benefits

There are certain important features of a term insurance plan with maturity benefits.  

Entry age: To be eligible to buy a term insurance plan with maturity benefits, the entry age bracket is generally 18-65 years.

Premium paying options: For term insurance plans with maturity benefits, one can choose one’s preferred option of premium payment. It can be regular, single, or limited payment of premiums.

Policy maturity: Depending on the policy tenure, the policy maturity of term insurance with maturity benefits can occur in the window of 18-65 years.

Premium payment mode: Premiums of a TROP policy can be paid in an annual, half-yearly, quarterly or monthly mode.

Coverage: A term insurance with a maturity benefit offers a death benefit in case the insured dies within the policy tenure and the maturity benefit if they survive the entire term.

Policy term: Policy term in case of TROP ranges between 5-35 years.

Advantages of a Term Insurance with Maturity Benefits

Term insurance with maturity benefits has a set of advantages. They are:

Assured protection: A TROP policy offers a guaranteed protection plan. While the nominee gets a death benefit if the policyholder dies during the policy, the money invested is not lost either if he survives. At the maturity of the policy, the total premium amount and bonus are paid to the policyholder as a consolidated amount.

Financial security: A term insurance with maturity benefits acts as financial security for both the policyholder and their family. In case the unforeseen happens, the policyholder’s family gets a death benefit that helps them overcome the financial troubles as well as move forward smoothly. If the policyholder survives, the lumpsum maturity benefits help them create large savings to fund important life goals.

Tax benefit: The death benefit is tax-free under section 10(10D) of the Income Tax Act 1961, while the premium payment is subject to an exemption under section 80C.*

Who should buy Term Plans with Maturity Benefits

Term plans with maturity benefit not only offer a lump sum payout in case of a policyholder’s death but a return of all the premiums paid on maturity of the policy if they survive the tenure. It can be particularly helpful for-

The newly married: Alongside the extensive life cover, a TROP policy can immensely help in handling new responsibilities by offering a large chunk of money at maturity.

Young parents: The return of premium or the death benefit can act as solid financial support to secure the child’s future.

The self-employed: With no certainty of regular income, the lump sum payout at maturity of a TROP policy can be used as a large savings corpus. Whereas, the death benefit can take care of the family’s needs in the event of the unfortunate demise of the insured.

The housewife: The death, as well as maturity benefits, can help them secure the family’s future at affordable premium payments.

Are there any maturity benefits in term plans?

The general term insurance policies offer payout at death only. But certain plans return the premiums paid as maturity benefits. 

In the case of TROP policies, the insurer divides the premium into two components – 

• Bears the cost of the life cover amount
• Creates wealth as savings

The general term plans don’t have the second component and hence they pay out only the life cover in the event of death of the insured. Premiums are low because of this factor. 

Reasons to buy term insurance even though there are no maturity benefits

Despite having no maturity benefits, term insurances are immensely helpful as they provide an assured and a large chunk of money as a death benefit at a low premium rate. While it is an affordable investment, this acts as solid financial support for your family in your absence. Hence, it's always profitable to buy a term insurance plan.

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ARN - ED/06/23/2460