What you get in the end is more meaningful at times? Isn’t it?
Gains and losses are a part of everything. At times, you may earn profits higher than you invest. For example, you put your money in a SIP (Systematic Investment Plan) every month. The returns with SIP are believed to be higher in most cases, so individuals plan their investments accordingly. Similarly, the amount of return (maturity value) affects the mindset to make more money with other financial tools like a life insurance policy.
This aspect is important to explore before you plan the growth. Let us see what the meaning of maturity value is.
Table of Content
What is the maturity value of the insurance policy?
How is maturity value calculated?
Instruments that come with maturity benefits?
Term Insurance: Maturity Benefit
Benefits of term insurance.
What is the maturity value of an insurance policy?
Maturity value is the amount any individual will receive as a financial obligation after the maturity date falls due. For example, under an insurance policy, the maturity value is the amount payable if the insured person survives till the last age as per the policy contract.
There are two essential things that a common individual can consider while buying a life insurance policy. These include the policy term, and the sum assured that one will receive at the end of the policy term(maturity value).
Maturity value consists of the total sum assured, bonuses received during the entire policy term and any final addition bonus that is declared by the insurer. The bonuses are announced depending on the insurance company’s performance and profit during the policy term.
Let us see in detail how the maturity value is calculated?
How is the maturity value of an ABSLI policy calculated?
The exact amount of maturity value cannot be calculated. But a close estimate of the maturity amount can be computed.
Maturity Value: Sum Assured +Bonuses+Final Additional Bonus.
Let us understand the computation with an example.
Mr Ramesh bought an ABSLI policy for Rs.10 lakhs for a policy term of 20 years. The insurance company includes bonuses and a final additional bonus (FAB). The bonus announced was Rs.40/1000, and FAB is Rs.22/1000 sum assured.
Amount of Bonus = (10,00,000/1000) X 40 X 20
Amount of FAB = (10,00,000/1000) X 22 X 20
Maturity Value of Insurance Policy =Rs.10,00,000 +Rs.8,00,000+ Rs.4,40,000
Instruments that come with maturity benefit.
Some other standard financial instruments that come with maturity benefits include:
- Life Insurance Policy (Savings Plan, Pension Plan, Term Plan(Return of Premium)
- Systematic Investment Plan
- Mutual Funds
Out of all the options available, one of the safest ways to get maturity benefits affordably is by buying a term insurance plan. Why? Let us read further to find out.
Term Insurance Maturity Benefit
Term insurance policy maturity benefit is a little different from other life insurance policies. A term insurance policy is said to offer death benefits only. The policy pays the nominee when the life insured passes away during the policy term. But individuals buy a term insurance policy on priority because it is a simple, cost-effective, and high-life cover.
If any individual wants to have a maturity benefit with a term plan, they can buy it with the Return of Premium option. Apart from other benefits that the policy provides, a TROP (term return of premium) plan provides income replacement and refund the premiums at maturity.
Further, let us read the benefits of term insurance to establish how favorable it will be to buy term insurance.
Benefits of Term Insurance
The term insurance comes with these benefits:
- Death Benefit: A term insurance policy is a pure life insurance policy that provides the death benefit. The nominee will receive the death benefit if the life insured passes away during the policy term.
- Maturity benefit: A traditional term insurance plan does not offer any maturity benefit. But with the return of the premium option, the policy gives back all the premium paid so far.
- High life cover at an affordable premium: A term insurance policy is a high life cover available at an affordable premium. For example, the policy for Rs.1 crore will cost you Rs.480/- per month for a policy term of 20 years.
- Extend the cover with riders: The term plan can be extended by buying additional rider covers like Critical Illness Cover, Hospital Care Cover, etc. The rider covers can be included at an extra premium from the policy’s inception.
- Tax Benefit: A life insured can avail of the tax deduction under Section 80C of the Income Tax Act,1961. All the premium paid in a year is eligible for a tax deduction. The total deduction allowed will be Rs.1.5 lakhs. Apart from the premium, the maturity value of the insurance policy is tax-free under Section 10(10D).
Does this apply to all? Let us find further.
Maturity value of insurance policy taxable or not?
The intent of offering the maturity value to the individual policyholder is to benefit them financially. Therefore, the maturity value of a life insurance policy enjoys tax exemption under Section 10(10D) of the Income Tax Act. The condition applies provided all the premium paid under the policy does not exceed 10% of the sum assured for any year during the premium paying term.
For the policies that were issued between the years 2003 to 2012, the cap on the premium is 20% of the sum assured.
Top term insurance plans to buy in India.
These are the top term insurance plans that offers maturity benefit:
ABSLI DigiShield Plan TROP: High selling term insurance plan from Aditya Birla Sun Life Insurance Company is designed to provide you cover till age 100 years. The policy includes the option of rider covers also.
PNB MetLife’s MetLife Suraksha TROP: This is a non-participating term life insurance plan. Not only does the plan provide life insurance coverage at a low cost, but it also provides the whole of all premiums paid, as well as assured additions.
TATA AIA Life Insurance iRaksha TROP: This is an online term return of premium plan that reimburses the policyholder for all premiums paid if the policyholder lives to the end of the policy term.
Max Life Premium Return Protection Plan: The term plan from Max Life protects the family against eventualities and returns the premium at the end of the plan. The premium is returned only if the life insured survives till the end.
The article explains how you calculate the maturity value of an ABSLI policy. A term insurance policy comes at an affordable price out of all the insurance plans. The insurance policy provides a high life cover and returns all the premium (if opted for Return-of-Premium) option. Maturity value indicates the financial strength you will gain through an insurance policy after years of premium payment. For more information on maturity value in an insurance policy, read here.