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Maturity Value in Term Insurance

TeamAckoMay 13, 2024

Term Insurance is a type of life insurance policy that provides monetary assistance to the policyholder's family if the policyholder dies during the policy period. It covers the risk of premature death and ensures that the family's financial needs are met in the absence of the breadwinner. However, in addition to the death benefit, some Term Insurance policies may also offer a maturity value. This article talks about it in detail.

Maturity

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Overview of maturity value in Term Insurance

The maturity value in Term Insurance refers to the amount that is payable to the policyholder if they survive the policy term. In other words, if the policyholder outlives the term of the policy, the insurance company will pay out an amount.

This maturity value is also known as the survival benefit or the maturity benefit. Note that this is not a common feature in a TI policy.

How does the maturity value differ from death benefit?

The death benefit is the amount that is payable to the beneficiaries or the nominee of the policyholder in the event of the policyholder's death.

It is payable only if the policyholder dies within the term of the policy. On the other hand, the maturity value is payable only if the policyholder survives the policy term.While the death benefit provides financial security to the policyholder's family in case of an unfortunate event, the maturity value provides a lump sum amount to the policyholder as a reward for surviving the policy term in insurance

It is important to note that not all TI policies offer a maturity value option. Therefore, it is essential to carefully read the policy documents and understand the terms and conditions of the policy before choosing a TI plan.

How Term Insurance works?

The primary purpose of TI policies is to provide financial security to the policyholder's loved ones in the event of the policyholder’s unexpected death. TI policies are often purchased to cover specific financial obligations.

The death benefit provided by the policy can help the policyholder's beneficiaries meet these financial obligations and maintain their standard of living after the policyholder's death.

How does the death benefit work?

The death benefit in TI policies is typically a lump sum payment made to the policyholder's beneficiaries.

The amount of the death benefit is determined by the policyholder when they purchase the policy and is based on factors such as the policyholder's age, health, and financial needs. If the policyholder dies during the term of the policy, the insurance company will pay the death benefit to the policyholder's beneficiaries.It's important to note that term insurance policies only provide coverage for a specific term or duration, such as 10, 20, or 30 years.

If the policyholder dies after the term of the policy has ended, the insurance company will not pay a death benefit. This is where the concept of maturity value comes in. Maturity value refers to the amount of money the policyholder receives from the insurance company if they outlive the term of the policy.

Understanding maturity value in Term Insurance

While the primary purpose of TI is to provide a death benefit to the policyholder's beneficiaries, some policies also offer a maturity value.

Types of maturity value options in Term Insurance policies

There are two types of maturity value options in TI policies.

Without maturity value

With this option, the policyholder is not entitled to receive any maturity value if they survive the policy term. In this case, the policy only provides a death benefit to the beneficiaries of the policyholder.

With maturity value

With this option, the policyholder is entitled to receive the maturity value if they survive the policy term. The maturity value is paid out at the end of the policy term, provided the policy is still in force.

When is the maturity value paid out?

The maturity value is paid out to the policyholder if they survive the policy term. The policy term is the duration for which the policy is in force. In most cases, the policy term ranges from 5 to 40 years, depending on the policyholder's requirements.

It is important to note that if the policyholder dies during the policy term, the death benefit will be paid out to the beneficiaries of the policyholder, and the maturity value will not be paid out.

How is the maturity value calculated?

The maturity value in term insurance policies is calculated based on the premium paid by the policyholder, the policy term, and the age of the policyholder.

It is usually equal to the total amount of premiums paid by the policyholder during the policy term. In some cases, the insurance company may offer an additional bonus or interest on the maturity value, which can increase the total amount paid out to the policyholder.

The bonus or interest rate offered on the maturity value varies from one insurance company to another and depends on various factors such as the performance of the company and prevailing market conditions.

Understanding Return of Premium (ROP) plan

Return of Premium (ROP) plan is a type of term insurance plan that offers a refund of all the premiums paid by the policyholder at the end of the policy term, provided the policyholder survives the policy term. 

ROP plans offer the benefit of both life cover and a savings plan, making them a popular choice among individuals who want to secure their family's financial future while also building a corpus for their own future needs.

How do ROP Plans work?

Return on Premium plans work like regular TI plans, except that they come with a higher premium amount. In ROP plans, the policyholder pays premiums throughout the policy term, just like regular TI plans.

However, if the policyholder outlives the policy term, the insurance company refunds all the premiums paid by the policyholder over the policy term. Thus, ROP plans have a maturity benefit, which is equal to the total premium paid over the policy term.

Pros and Cons of ROP plans

ROP plans offer several benefits to the policyholder, such as follows.

  1. Guaranteed return of premium: One of the main advantages of ROP plans is that they offer a guaranteed return of premium at the end of the policy term, provided the policyholder survives the policy term.

  2. Dual benefit of life cover and savings: ROP plans offer the two-pronged benefit of a life cover and a savings plan.

  3. Tax benefits: Policyholders can avail tax benefits on the premiums paid under ROP plans under Section 80C of the Income Tax Act, 1961.

However, ROP plans also come with a few disadvantages, such as follows.

  1. Higher premiums: ROP plans have a higher premium amount than regular term insurance plans, which may make them unaffordable for some individuals.

  2. Lower returns: ROP plans provide a lower return on investment than other savings plans such as fixed deposits, mutual funds, etc.

  3. Limited coverage: ROP plans provide limited life coverage as compared to regular TI plans, which may not be sufficient for some individuals.

Comparison of Maturity Value Plans and ROP plans

Maturity value and Return of Premium (ROP) plans are two options available in TI policies. Both options have their own benefits and drawbacks, and individuals need to consider their financial goals and requirements before choosing one.Benefits of Maturity Value plan

  • Provides a lump sum amount at the end of the policy term, even if the policyholder survives the term.

  • Can be used to fund retirement or other financial goals.

  • Lower premiums compared to ROP plans.

Drawbacks of Maturity Value plan

  • No refund of premiums paid if the policyholder dies during the policy term.

  • No additional benefits or riders available.

Benefits of ROP plan

Drawbacks of ROP plan

  • Higher premiums compared to Maturity Value plans.

  • No payout if the policyholder dies during the policy term.

Here's a comparison table between Maturity Value and ROP plans.

FEATURES

MATURITY VALUE PLAN

RETURN OF PREMIUM (ROP) PLAN

Payout

Lump sum at end of term

Refund of premiums paid if policyholder survives term

Premiums

Lower premiums

Higher premiums

Death Benefit

Pays out only in case of death during the policy term

Pays out only in case of death during the policy term

Riders

No additional riders

Additional riders available (Accidental Death Benefit, Critical Illness Coverage, etc.)

Refund of Premiums

No refund of premiums paid

Refund of all premiums paid if policyholder survives term

Factors to consider while choosing Maturity Value and ROP plans

When choosing a maturity value in a term insurance plan, consider the following factors:

  • Financial Goals: Evaluate what money you will need in the future, like saving for when you stop working, paying for your kids' schooling, or high costs that might come up to decide a suitable amount for when investments mature. 

Explore the ACKO Life Flexi Term Plan, a unique plan that offers flexible coverage for your changing lifestyle! You can also add extra protection through riders like accidental death, accidental total permanent disabilities, and critical illness

  • Premium Affordability: Make sure the insurance cost is something you can pay without causing financial problems, as usually, when the final amount to be received is higher, so are the payments.

  • Policy Duration: When the policy lasts longer, it is wise to consider choosing a greater maturity value. This helps deal with rising costs and spending needs in the future.

  • Risk Coverage: Ensure you recall that the main reason for having term insurance is to get life protection. You should weigh the value at maturity while ensuring enough risk coverage (the assured sum).

  • Tax Advantages: Comprehend the tax outcomes connected to the value at maturity and any possible reductions or exemptions you can have.

Wrapping Up

The guaranteed return feature and premium refund at insurance maturity are two advantages of the term return of premium plan. Therefore, It is always advisable to evaluate the plans the insurance company offers and select the one that best suits your needs.

Frequently Asked Questions

Here are some common questions about maturity value in Term Insurance.

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What is the key difference between maturity value and death benefit?

While the maturity value provides a payout to the policyholder if they survive the policy term, the death benefit provides financial security to the nominee in case of the policyholder's death.

How is maturity value calculated?

The maturity value in term insurance is calculated based on various factors, including the policy term, premium amount, age of the policyholder, and the chosen payout option. The maturity value is usually equal to the sum assured, and the policyholder can choose to receive the payout as a lump sum or as regular instalments.

What is the benefit of ROP plans?

The primary benefit of Return of Premium (ROP) plans is that they offer a refund of the premium paid by the policyholder if they outlive the policy term. This means that the policyholder can receive back the entire premium amount paid if they survive the policy term. However, the premiums for ROP plans are usually higher than those for regular term insurance policies.

How can I determine whether a Maturity Value Plan or a ROP plan is right for me?

The choice between Maturity Value and ROP plans ultimately depends on your financial goals and requirements. If you want to ensure that you receive a payout at the end of the policy term, Maturity Value may be the right option for you. On the other hand, if you want to receive a refund of the premiums paid if you outlive the policy term, ROP plans may be a better option.

Do all term insurance plans have maturity benefits?

No, maturity benefits are only provided by plans with term return of premium; pure-term plans do not include such benefits. What happens when a term life insurance policy matures? When a term life insurance policy matures, the life coverage ends. Some term plans offer the option to renew the coverage for an additional term, often at higher premiums due to the insured's increased age.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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