Survival Benefit Vs Maturity Benefit in Life Insurance
Understand the difference between survival benefit and maturity benefits. Types of payouts you receive at the end of the policy term in life insurance.
5 min read
September 23, 2024
Simmran Sharma
Life insurance offers various payout options and benefits to suit different needs. The primary payout is the death benefit, providing financial support to beneficiaries upon the policyholder's death. While other benefits, such as maturity and survival benefits, focus on rewarding the policyholder for surviving the policy term or offering regular income. Each serves distinct roles in financial planning. Let us dive into the types of life insurance payout in detail.
Payout in Life Insurance
In life insurance in India, a payout refers to the amount of money that the insurer disburses to the policyholder or their beneficiaries under specific conditions outlined in the policy. Payouts can occur in different scenarios:
> Death Benefit: A lump sum paid to the beneficiaries if the policyholder passes away during the policy term.
> Maturity Benefit: A sum paid to the policyholder if they survive the entire policy term, usually at the end of the term.
> Survival Benefit: Periodic payouts provided during the policy term if the policyholder survives specified intervals.
> Surrender Value: The amount received if the policyholder chooses to terminate the policy before its maturity.
> Bonuses: Additional amounts that may be added to certain policies, enhancing the total payout at maturity or upon death.
What is Survival Benefit?
It is a type of life insurance policy that provides a payout to the policyholder if they survive the policy term. Unlike traditional life insurance, which pays out only upon the policyholder's death.
a) Key Features
These policies often come with features such as:
> Maturity Benefit: A lump sum amount is paid at the end of the policy term.
> Regular Income Options: Some plans may offer periodic payouts during the policy term.
> Bonus Additions: Certain plans may declare bonuses that enhance the final payout.
> Easy Claim Process: Generally, these policies have straightforward claim procedures, making it easier for beneficiaries to access funds when needed.
> Assured Returns: Unlike market-linked products, these plans usually offer guaranteed returns, reducing investment risk.
b) Advantages
Suitable for individuals looking to save for future goals while ensuring some financial security. It can play a significant role in financial planning in several ways:
1) Goal-Oriented Savings: It helps you save for specific future goals, such as buying a house, funding education, or retirement, by providing a lump sum at maturity.
2) Risk Management: While it primarily serves as a savings instrument, it can also offer life cover, ensuring that your family is financially secure in case of unforeseen events.
3) Periodic Payouts: Some plans provide regular income during the policy term, helping manage expenses or fund ongoing financial commitments.
4) Loan Facility: Certain policies allow you to take loans against the surrender value, providing liquidity during emergencies.
5) Tax Benefits: Premiums paid may qualify for deductions under Section 80C of the Income Tax Act, and the maturity amount is generally tax-free under Section 10(10D), enhancing overall returns.
6) Encourages Discipline: Committing to a policy encourages disciplined saving over the policy term, promoting better financial habits. Additionally, these policies often have longer terms, promoting long-term financial planning.
7) Inflation Hedge: With some policies offering bonuses or increasing benefits over time, they can help counteract inflation, ensuring your savings retain value.
Incorporating it into your financial plan can create a balanced approach to savings, protection, and growth.
c) Types of Plans that offer Survival Benefit
Several types of life insurance plans offer this benefit. Here are the ones that primarily offer them:
1) Endowment Plans: These policies combine insurance and savings, providing a lump sum payout if the policyholder survives the term. They also offer a death benefit.
2) Money-Back Plans: These provide periodic payouts at regular intervals during the policy term, in addition to payout at maturity if the insured survives the entire term.
3) Child Plans: Designed to ensure financial security for a child’s future they typically offer it along with life coverage.
4) ULIPs (Unit Linked Insurance Plans): While primarily investment products, some ULIPs provide this benefit depending on the fund value at maturity.
Survival benefits in India are often associated with LIC plans, which means that these plans usually include this form of payout in their endowment plans. When choosing a plan, consider your financial goals, risk appetite, and coverage needs. Always read the policy details to understand the specific terms and benefits.
What is Maturity Benefit?
It is the sum of money that is paid to the policyholder at the end of the policy term, provided that the insured person survives the duration of the policy.
a) Key Features
These policies often come with features such as:
> Lump Sum Payment: The amount is generally paid as a single lump sum.
> Guaranteed Amount: It often includes a guaranteed sum assured, along with any bonuses if applicable.
> Financial Planning Tool: It helps in meeting financial goals like education, marriage, or retirement.
b) Advantages
The advantages of this payout in insurance policies include:
1) Guaranteed Returns: Provides a fixed payout at the end of the policy term, ensuring a reliable financial return.
2) Supports Life Goals: Helps policyholders meet significant life goals, such as funding education, buying a home, or planning for retirement.
3) Tax Benefits: The maturity amount is usually tax-free under Section 10(10D) of the Income Tax Act, enhancing the effective return.
4) Habit of Saving: Committing to a policy fosters a habit of regular saving, helping policyholders stay financially disciplined.
5) Bonus Additions: Many policies offer bonuses based on the insurer's performance, potentially increasing the maturity amount beyond the guaranteed sum.
6) Investment Growth Potential: In certain plans, like ULIPs, it may reflect market growth, providing higher returns.
7) Surrender Value: If the policyholder decides to exit the policy early, many plans offer a surrender value based on premiums paid, providing some liquidity.
8) No Claim Process: Unlike death benefits, iit does not require a claim process, making the payout straightforward and hassle-free.
9) Customization Options: Many policies allow for riders or add-ons, which can enhance benefits and coverage during the policy term.
10) Protection Against Inflation: With certain plans offering bonuses and market-linked options, it can help mitigate inflation's impact on savings.
11) Estate Planning Tool: The lump sum received can be used for estate planning, ensuring beneficiaries receive financial support when needed.
These advantages make maturity benefits a valuable aspect of life insurance, combining savings, protection, and potential growth.
c) Types of Plans that offer Maturity Benefit
Several types of life insurance plans offer this feature. Here are the ones that primarily do so:
> Endowment Plans: Pay a lump sum upon maturity along with any bonuses accrued.
> Money-Back Plans: Provide periodic payouts during the policy term and a final benefit at the end upon maturity.
> Limited Pay Policies: Offered after a specified payment period.
> Child Plans: Ensure a lump sum payout when the child reaches a certain age.
This benefit enhances the appeal of these insurance products, providing a combination of insurance coverage and a savings component.
Survival Benefit Vs Maturity Benefit
Understanding the differences between the two is essential for effective financial planning. Both concepts play significant roles in insurance and investment products, providing policyholders with financial support. This comparison highlights their unique features, purposes, and eligibility, helping individuals make informed decisions about their financial futures.
| Point of distinction | Survival Benefit | Maturity Benefit |
Definition | Payout if the policyholder survives a specific period. | Payout at the end of the policy term, regardless of survival. |
Purpose | Provides financial support for survival beyond a certain age or term. | Provides a financial return or payout upon policy maturity. |
Eligibility | Received by the policyholder if they are alive at a specified time. | Received by the policyholder or beneficiary when the policy matures.
|
Focus | Emphasizes survival and risk mitigation. | Emphasizes long-term savings and investment growth. |
Financial Impact | Can offer regular payouts or benefits over time. | Generally provides a lump-sum payment at maturity. |
Ultimately, each benefit serves a different purpose, impacting risk management and long-term savings strategies for informed decision-making.
Making the Right Choice
Assess both the payouts to ensure they align with your financial requirements. Here are key factors to keep in mind before purchasing life insurance with survival benefit:
> Term period: Evaluate when the policy begins paying the benefits and how long you need to outlive to qualify for these payments.
> Higher premiums: Be aware that for these policies premiums are typically higher than those for standard term insurance plans.
> Intervals: Check the frequency of the payouts, which may be available annually, bi-annually, or at specified intervals.
> Flexibility and Riders: Investigate whether the policy allows for customization or the addition of riders to enhance your coverage options.
Bottomline
In summary, both benefits serve distinct yet complementary purposes in financial planning. While survival benefits focus on providing support during the policy term, maturity benefits offer a financial return at the end of the term. Recognizing these differences can guide individuals toward better financial security and goal achievement. Buy your ideal life insurance policy. Reach out to us on +91 6364334343 and book a free consultation with OneAssure experts.