Maturity Benefit

Maturity benefit is the amount paid to the policyholder at the end of a savings-linked life insurance policy's term if the life assured survives the term. It applies to endowment, money-back, ULIP, and whole-life-with-bonus plans — not to term insurance, which by design has no maturity value. The maturity benefit in a traditional participating endowment plan typically consists of the sum assured plus accumulated bonuses declared by the insurer each year (often described as 'reversionary bonuses' and a 'terminal bonus') plus any guaranteed additions that were part of the policy's contractual feature.

Worked example: a 25-year, ₹10 lakh sum-assured endowment plan with an annual premium of roughly ₹48,000 (typical of Indian LIC endowment pricing for a 30-year-old) might produce a maturity benefit in the indicative range of ₹22 lakh to ₹28 lakh — translating to an internal rate of return of roughly 5% to 6% net of premium-allocation charges. If you parked the same annual ₹48,000 in a diversified equity mutual fund at an illustrative 10% pre-tax return, the 25-year corpus would be roughly ₹52 lakh, a meaningful gap. Under Section 10(10D) of the Income-tax Act (pre-2023 rules), maturity benefits on policies where the premium did not exceed 10% of the sum assured were exempt from tax; the Union Budget 2023 tightened this: from 1 April 2023, maturity proceeds of non-ULIP, non-unit-linked policies (other than term plans and death benefits) are taxable if the aggregate annual premium across all such policies issued on or after 1 April 2023 exceeds ₹5 lakh, with the taxable amount added to total income.

A common misconception is that the maturity benefit on a traditional plan is 'guaranteed'. Only the sum assured and any explicitly named guaranteed additions are guaranteed by contract; reversionary and terminal bonuses are illustrative projections that depend on the insurer's investment experience and may be lower than illustrated. Always examine the 'benefit illustration' sheet which shows a 4% and an 8% scenario — the real-world outcome usually sits below the 8% figure.

Related: endowment plan, sum assured, IRR.