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Understanding Term Insurance Maturity Benefits: A Complete Guide

3 min read
Term Insurance

Before buying term insurance, it is crucial to know exactly what it offers. One common misconception is that all term insurance plans come with maturity benefits, but that is not always the case. Only specific types of term insurance offer maturity benefits.

This article clears up the confusion and explains what to expect when it comes to term insurance maturity benefits.

What are maturity benefits?
Maturity benefits are the pay-outs you receive at the end of an insurance policy term. These typically include the sum assured along with any bonuses accumulated during the policy term. Many life insurance plans, such as endowment plans, Unit-Linked Insurance Plans (ULIPs) and money-back plans, offer maturity benefits. However, pure-term insurance plans usually do not provide these benefits.

Why are there no maturity benefits in term insurance?
Term insurance is designed purely for protection, not for savings or investments. Unlike other life insurance policies, term insurance does not invest the premiums anywhere. Its primary purpose is to secure your loved ones financially in your absence. By excluding maturity benefits, term insurance plans keep premiums low and affordable, focusing entirely on providing cost-effective financial coverage.

These plans only pay a death benefit if a claim is made during the policy term. If no claim is made, there is no payout for either the policyholder or the nominee.

Are there any exceptions where term insurance offers maturity benefits?
Yes, some term insurance plans do offer maturity benefits. These are called return of premium term plans. With such plans, a refund of the total premiums paid is returned to the policyholder at the end of the policy term, provided no death claim was made.

The maturity benefit usually equals the total premiums paid. So, if you paid ₹ 10,000 as the premium every year for 30 years, the total amount you paid would be ₹ 3,00,000. In this case, you would receive ₹ 3,00,000 as maturity benefits when the policy ends.

While a return of premium plan offers a maturity benefit, it is usually costlier than standard term insurance.

What are the benefits of buying a term insurance plan with maturity benefits?
Here are some benefits of purchasing a term plan with maturity benefits:

  • Long-term savings: Since these types of plans return the premiums to you, you can use the money to cover your long-term financial goals.
  • Cancels out the expense: The money you paid in premiums is returned to you at the end of the term. This essentially makes the policy cost-free by cancelling out any expenses you have incurred.
  • Financial security: Your loved ones remain financially secure throughout the policy’s tenure, providing you with peace of mind knowing they are protected.
  • Riders: Term plans with return of premium allow you to add riders, such as critical illness, terminal illness, accidental death and permanent disability, enhancing your policy’s coverage.
  • Tax benefits: A maximum tax deduction of ₹ 1.5 lakh is available on term insurance premiums under Section 80C of The Income Tax Act, 1961. You can claim this deduction in the years you pay the premium, which can help lower your overall tax liability.

Conclusion

Even though it comes with slightly higher expenses, term insurance with maturity benefits can be a good addition to your financial portfolio. By refunding the premiums paid, these plans make the coverage effectively cost-free while offering financial security to your loved ones. This type of plan is ideal if you are looking to build long-term savings and want to use the lump-sum benefit in the future, all while ensuring your loved ones remain financially secure.