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Maturity Benefit

Updated on October 4, 2023

“Maturity Benefits” refer to the financial benefits that an insurance policyholder receives from their insurance policy upon the completion of the policy’s term or maturity date. These benefits are typically associated with life insurance policies, especially traditional endowment and money-back policies as per the terms of the policy.

What are the key aspects of maturity benefits?

The key aspects of maturity benefits are mentioned below.

Policy Term and Maturity Benefits – The policy term represents the duration the policyholder holds the insurance policy, with maturity benefits associated with specific life insurance types.

Guaranteed Sum Assured – Many traditional life insurance policies guarantee a sum assured amount, paid as a lump sum at policy maturity, contingent on premium payments.

Bonuses in Participating Policies – Certain life insurance policies, termed participating policies, offer bonuses, including reversionary bonuses (annually declared, payable on maturity) and terminal bonuses (end of the policy term). These bonuses, linked to insurer profits, are not assured and may vary.

Tax Advantages – Maturity benefits from life insurance policies frequently carry tax benefits, with payouts upon maturity typically exempt from taxation under Section 10(10D) of the Income Tax Act, enhancing its appeal as an investment and savings avenue.

What is the importance of maturity benefits?

Maturity benefits serve several important purposes for policyholders in India:

Savings and Wealth Accumulation – Maturity benefits provide a disciplined way to save and accumulate wealth over time. Policyholders can use the lump sum received at maturity for various financial goals such as retirement planning, education expenses, or buying a home.

Financial Security – The guaranteed sum assured and potential bonuses ensure that policyholders and their beneficiaries have a financial safety net in case of the policyholder’s survival till maturity or in the event of an unfortunate demise during the policy term.

Tax Efficiency – Maturity benefits from life insurance policies enjoy favourable tax treatment, making them a tax-efficient instrument for long-term savings and wealth creation.

Legacy Planning – Maturity benefits can be used as a means of leaving a legacy for one’s heirs or beneficiaries.