TeamAckoNov 7, 2023
Term Insurance (TI) is the most fundamental and traditional form of life insurance that aims to provide financial protection to the nominees in the event of the untimely demise of the policyholder during the policy term. It is a foremost plan to take care of the needs of one’s dependents. This is especially recommended to the sole breadwinners of a family. You must be aware of certain concepts before purchasing this plan and maturity age (maturity date) is one such concept.
The maturity age of a Term Insurance policy refers to the date when the financial obligation between the insurer and the policyholder is over.
Although uncommon, this may call for some maturity benefits to be paid back to the policyholder at the end of the policy term. This is usually the case with Endowment plans or Term Insurance with a Return of Premium.
The main reason that basic Term Insurance lacks maturity benefits is that it does not offer a savings component. It instead offers a life cover at a nominal rate of premium. This can be further enhanced by add-ons/riders which help customise the policy to meet one’s individual needs.The maturity age in Term Insurance can be better understood with an example.Rohan purchases a Term Plan for 15 years with a sum insured of Rs. 50 lakhs. He chooses his wife to be the nominee.
He pays a nominal premium of Rs. 700 per month. Fortunately, Rohan survives the next 15 years of his policy term. At the end of 15 years, the policy matures without any maturity benefits being paid to him or his wife as he had not opted for a Return of Premiums add-on at the time of the purchase of the policy. In case of Rohan’s death, the amount would have been paid to Rohan’s wife.
In the case of Term Insurance with a Return of Premium add-on, the maturity age of the insurance policy would call for maturity benefits consisting of the total amount of paid premium. Here, the premiums paid are usually higher as they cover both unforeseen events and investment needs.
The traditional form of Term Insurance does not offer maturity benefits. If the Term Plan is taken along with the Return of Premium add-on, then the policy has added maturity benefits. This is beneficial in case the policyholder outlives the policy term.
Some common types of maturity benefits are as follows.
This is an additional bonus that is accrued to the insurance plan over a period of time and paid at maturity or demise.
It is a form of residual bonus that is declared by the insurer at the maturity of an insurance plan.
It is a guaranteed fixed amount that the insurer pays to the policyholder‘s beneficiaries at the time of death of the policyholder.
Here’s a list of benefits associated with TI with maturity benefits.
Maturity benefits: If the policyholder purchased Term insurance with a Return of Premium add-on, they receive the accumulated amount as premiums paid at the maturity age of the policy. This takes place in case the insured outlives the policy term, which is not offered under basic Term Insurance Plan without any add-ons.
Death benefits: Just like a basic Term plan, Term Insurance with death benefits offers a sum assured to the beneficiary of the policyholder, in case of any unanticipated events leading to the demise of the policyholder.
Add-ons and Riders: The best way to personalise a Term Plan is by adding life insurance riders. These help the policy fit one’s individual needs. These can also be beneficial in increasing the overall coverage, depending on the choice of the rider.
Tax benefits: Premiums paid towards term plans with maturity benefits are exempt from tax under Section 80C of the Income Tax Act (If the maturity benefits are available, they are also exempt from tax under Section 10 D) as per applicable terms and conditions.
Affordable: Term Insurance with maturity benefits usually comes with a reasonable price for premiums. The best way to avoid financial pressure is to select a plan with a longer policy term. This is also helpful in covering financial needs in the future.
Here are some maturity benefits that are offered to the policyholder in case he survives the term of the policy.
Unit-Linked Insurance Plans (ULIPs): Under Unit-linked Insurance Plans come with an investment component because they generate returns. The remaining part of the premium is utilised to provide life coverage. These might come with some associated charges and usually have a higher risk involved but the rate of return is also higher. Partial withdrawals of money are also allowed from ULIPs to meet any financial requirement.
Term Plan with Return of Premium: Under this category, premiums are returned to the policyholder at the maturity of the Term Plan. Apart from this, the death benefits are also included where the sum assured is paid to the nominee on account of the demise of the policyholder. Therefore, these offer dual benefits.
Endowment Plans: Endowment plans also offer the benefits of both investment and insurance. This differs from ULIPs as the investment is made in debt funds and the risk is lower. These offer maturity benefits with added bonuses to the policyholder if they survive the policy term. The sum assured is usually lower than Term Plans.
Some of the features of a Term Plan with maturity benefits are as follows. Note that these are generic and exact details depend upon the chosen plan.
18 years to 65 years
A spouse can be added to Term plan
5 years to 35 years
Choice of premium payment
Maturity and/or death benefits
Free look period (time in which the policy can be terminated by the policyholder)
15 days to 30 days depending upon the terms and conditions of the insurer.
Premium paying term
Single pay Limited pay Regular pay
Age at maturity
25 years/ 75 years or whole life
Choosing the best Term Plan can be a crucial choice for the financial security of one’s family. There are many plans to choose from in the market but understanding which can provide maximum security requires the following points to be considered before making the purchase.
Analyse your income: The premiums paid towards Term Insurance should not come at the cost of an overbearing financial burden. It is prudent to make investments according to one’s income. A clear idea of one’s income can help determine what portion can be paid towards an insurance plan in the long run.
Analyse existing liabilities: Any financial commitments that may be diverted to one’s dependents in the policyholder’s absence must be clearly examined. These can include any debts, payment of mortgages, higher study or the marriage of children. To protect the dependents from overburdening financial responsibilities, the Term Plan should be chosen wisely to meet all such requirements. This is crucial in determining the sum assured in the policy.
Addition of riders: The best method to boost a Term Plan is by the addition of riders. These are additional services that come at a low cost but with high benefits. These can be purchased at the time of the purchase or renewal of the base policy. This helps the policyholder personalise the policy to cater to all his financial needs.
Claim settlement ratio: The choice of the insurance company should be selected based on the number of claims it settles in a year. This is where the claim settlement ratio comes into play. It signifies a ratio of claims paid out to the total number of claims filed in a year. Therefore, a higher ratio means that it will be easier for the dependents to receive payouts in the event of the demise of the policyholder.
Analyse the life stage: Age is a significant driver in deciding a Term Plan. Young or middle ages come with more responsibility towards one’s dependents. Early investment in a Term Plan is a better choice as it provides more benefits and costs less.
Cost of premium: The cost of the premium should not overwhelm the policyholder.
No, most Term Plans do not have maturity benefits. However, a Return of Premium rider can offer such benefits.
The nominee of the policyholder is still eligible for a payout after completing the necessary documentation provided the applicable terms and conditions are met.
Yes, some habits like smoking and drinking are considered before the purchase of the Term Plan. This is because such habits make you more susceptible to developing illnesses in life.
All kinds of deaths are covered under a Term Plan unless specifically excluded in the policy document. Thus, go through the exclusions carefully.
Add-ons, also called riders, cover additional financial emergencies at a low cost. These can be opted for at the time of the purchase of the policy. The choice of riders available may depend on the insurance company.
Yes, one can purchase multiple Term Plans from different insurance companies.
A Term Insurance plan is one of the best life insurance policies to buy early in life. It provides a financial cushion to the family of the policyholder upon policyholder’s death and the premiums paid towards it come at an affordable price. Also, the addition of riders can make a base plan way more robust by increasing the overall cover and financial security.
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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