Maturity benefit

What is a maturity benefit?

A maturity benefit is the payment a life insurer makes when a policy reaches the end of its term with the life assured still alive and the policy in force. It is what makes a savings policy different from pure term insurance, which usually pays nothing on survival. The IRDAI (Insurance Products) Regulations, 2024 define it as the sum assured on maturity plus any additional and accrued benefits payable at maturity under the policy terms.

What the maturity benefit consists of depends on the type of plan:

How maturity benefits work in India

As of October 2026, the rules that shape a maturity benefit are:

• Positive return. For savings products other than term with return of premium, survival benefits including the maturity benefit must give at least a non-zero positive return on premiums.
• ULIP floor and settlement. A ULIP's maturity benefit is at least the fund value. The insurer may offer a settlement option that pays it in instalments over up to five years from maturity; during that period the policyholder still bears market risk, life cover is kept at 105% of premiums paid, and the policyholder can withdraw the balance at any time without charge.
• Instalment options. Non-linked plans may also offer maturity in instalments; the master circular asks that any instalment period be reasonable.
• Illustration. The benefit illustration given at sale must show maturity values at 4% and 8% gross investment returns, except where all benefits are fixed in rupees.
• Payment timing. Under IRDAI's 2024 policyholder protection framework, maturity, survival and annuity payments are due on the due date, not merely by it. Insurers typically write to the policyholder before maturity asking for the discharge form, bank details and KYC.

Tax on maturity proceeds

A maturity benefit is tax-free only if the policy meets the conditions carried from the former section 10(10D) of the Income-tax Act, 1961 into the Income-tax Act, 2025 (in force from 1 April 2026):

• the premium in any year is within the permitted share of the sum assured (10% for policies issued from April 2012);
• for non-linked policies issued on or after 1 April 2023, the aggregate annual premium across such policies is within ₹5 lakh;
• for ULIPs issued on or after 1 February 2021, the annual premium is within ₹2.5 lakh.

Where the maturity benefit is taxable, the insurer deducts TDS on the income portion (the payout less premiums paid). The rate was cut from 5% to 2% from 1 October 2024 under the provision then numbered section 194DA. See TDS on insurance payouts and Section 10(10D).

What a maturity benefit means for distribution

The maturity date is one of the few points in a long policy where the customer is guaranteed to pay attention, and how it is handled affects both service quality and new business.

• Set the expectation at sale. Disputes at maturity usually trace back to the sale: a customer who remembers the 8% column, or a bonus rate quoted as certain, expects more than the policy pays. Using the signed illustration and the Customer Information Sheet at the point of sale prevents most of these complaints.
• Prepare the claim early. Insurers that contact customers months before maturity, confirm bank and KYC details and pre-fill the maturity claim paperwork are better placed to pay on the due date. Stale addresses and closed bank accounts are a common reason maturity amounts go unclaimed.
• Explain the tax outcome. For policies above the premium thresholds, the customer should know before maturity that part of the payout will be taxed and that TDS will be deducted, so the net amount is not a surprise.
• Reinvestment advice, not churn. A maturing customer has cash and an established relationship with the insurer and adviser. Offering a new plan is legitimate when it fits a real need, such as an annuity for a retiree. Rolling every maturity into another long savings plan to earn fresh commission is the opposite of advice, and IRDAI's 2026 consultation paper signals tougher suitability expectations.
• Settlement options. For ULIPs, a settlement option can help a customer avoid cashing out at a market low, but it keeps the money exposed to market risk. The adviser should explain both sides.
• Measure maturity retention. Some insurers track how much maturing money is reinvested with them. Retention driven by good advice is a sign of trust; retention driven by pressure shows up later as complaints and early surrenders.