What Does it Mean for a Life Insurance Policy to Mature
Your Life Insurance Matured? What does it Imply?
You may notice that the life insurance policy you have taken contains a date when your policy matures, and there can be some perplexity as to what this intends. In simple terms, the maturity date of your insurance policy is the date when the policy winds up to operate, and the accumulated benefit matures. Mature life insurance can be claimed only if all due premiums have been paid on time.
A maturity date concerns two types of life insurance policies that can be either a term life insurance policy or a permanent life insurance policy. The difference between these two types of life insurance policies are, the term life insurance policy covers you for a certain number of years, while a permanent life insurance policy usually lasts your whole life.
When it comes to permanent life insurance, the most common forms are Whole Life Insurance and Universal Life insurance. Usually, this type of life insurance policy ends at a certain age between 95 and 121, and the age at which the permanent insurance policy terminates will be noted as the maturity date.
What is a maturity benefit?
The insurance claim secured by the policyholder once it becomes mature life insurance is known as the maturity benefit. After the completion of the maturity tenure, the insurance companies settle a definite sum to the clients. The advantage of getting the claimed amounts is a thorough continuation of the policy and the completion of the term as per the contract signed. In general, the maturity sum is the premiums paid till the insurance gets matured and the supplementary benefits that the insurance company chooses to offer to the holder of the policy.
Do all life insurance policies have maturity benefits?
No. You need to know that pure term life insurance policies will not be provided with any maturity benefits. Only endowment, money back, universal life insurance, and term life with return of premium payment have such benefits. Pure term life insurance policies are meant only for protection and give you no pay-outs in case you persist the entire policy term as per the terms and conditions.
On the other hand, the part of the premium you pay to your insurer will be invested into avenues for building wealth in endowment and money-back plans. These plans acquire bonuses over the policy term that are paid out along with maturity amount when you possess mature life insurance.
What happens when whole life insurance matures?
This type of policy is payable only when you die or surpass the maturity date of the policy. In case you outlive the maturity date, you will be paid a cash lump sum, but this is comparatively lower than the amount than the death benefit.
You need to be aware of one thing. Any cash value paid to either yourself or your beneficiaries is regarded as general income unless not resulting from your death. Therefore, this figure (except premiums paid) will be eligible for taxation at the normal rate, while death benefits are not subjected to taxation under certain requirements.
What happens when a universal life insurance policy matures?
It is a less costly form of life insurance policy that builds a cash value while also covering the insured individual for life. And also, the cash value and the death benefits will not be linked together as they would be within a whole life insurance policy.
If the insured lives to the maturity date, anywhere from ages 95 – 121, according to the policy, the cash value will be paid to the insured as an endowment which may be significantly lower than the cash value received by your beneficiaries in the name of the death benefit.
Do you know the advantages of mature life insurance?
- When the life insurance policy matures, the policyholder can claim the benefits from the policies, and the company provides a fixed amount or a variable amount for the type of product chosen once the plan tenure gets completed.
- For a mature life insurance policy, you get guaranteed returns along with premiums earned from fund investments in case of all types of life insurance except term life insurance policy.
- The amount you receive when a policy maturity qualifies for a tax deduction under section 10 (10D) of the Income Tax Act, 1961.
- The maturity benefits include a steady increase in the corpus, and at the halt of the maturity term, the insurer pays out the total amount to you.
- These types of policies provide a safety net for your family in case of death, as well as work as a saving or investment tool for you to use the accumulated funds you get on maturity on education, travel, etc.
Matured life insurance tax implications
The individuals who sign whole and universal life insurance policies usually expect to pass away before the policies mature and the benefits are paid to the beneficiaries added, which are free of tax. If they end up surviving till their policy turns into mature life insurance, then they will receive endowments, which are diminished through taxes as they are issued. Endowment income, which is the amount of an endowment less the premiums paid by the insured, is to be considered a form of regular income, which is then taxed at that rate. From that point of view, life insurance benefits are not considered taxable.
Once a life insurance policy matures, the insurer may pay the cash value to the owner of the policy, which will be counted toward taxable income. So, it’s a bit contrary to a policy’s death benefit where the agreed benefit amount will be paid as a lump sum to your beneficiaries.
On culminating, the insurance company must pay the cash value to the policy owner when it becomes mature life insurance. All types of permanent insurance life policies tend to have a maturity date between 95 and 121 years old. The one who survives the maturity period can collect the cash value or the death benefit on their birthday.
Thus, it’s evident that life insurance policies don’t just guarantee you the tranquillity of mind for unfortunate events but can also help you accomplish your life goals through much-needed financial support.