Benefits of a life policy before maturity

Shankar Singh, was worried about the expenses of his daughter’s wedding. He had never taken a loan and would not go for it. But he had an option. One of his life insurance policies was due for maturity after 11 months. He applied for a discounted claim in the policy and got the money.

We choose life insurance for family’s financial security. However, apart from the death factor, there are others things one should look at before taking a policy. The most important aspect is the benefit on policy maturity.

The most popular claims in life insurance policy are:

 

Money back or survival benefit: The policy holder gets periodic payments on survival during the term of the policy and a lump sum amount on surviving its term. 
 

Maturity claim: The payment to the policy holder at the end of the stipulated term of the policy is called maturity claim. 
 

Death claim: The person(s) or entity(ies) (for example corporation, trust, and so on) named in the policy receive insurance proceeds upon the death of the insured.

Define your specific goals and objectives first. It can be:

Choosing a death benefit sufficient to pay off the debts of the family 
 

A lump sum sufficient to pay the family’s expenses for life 
 

Pay for the education or career needs of children 
 

Provision for regular pension

Once, you know the goals, it is easier to select a policy to make it work for you. Puneet Jain, for example, made one such mistake. His dream was to see his son become an aeronautical engineer. Not wanting any hurdles in realising this, he purchased a life insurance policy which would fetch him returns at the crucial stages of his son’s career. Recently, Jain died in a car crash. The wife did get the claim but the policy terms were such that the money was reduced to a nominal value. The amount received was not sufficient to meet even the present education needs of the son.

If he had taken an endowment assurance plan that provides for benefits on or from the selected maturity date to meet the expenses of the named child.

In sum, life insurance is not only about death, it is also about your future and family’s well being. Evaluate what you exactly want and opt for the plan accordingly. It is like purchasing a shirt of the desired size or first buying a shirt and then looking for whom it will fit best.

On maturity, if you don’t need to, don’t take the value. But you must know the options:

Discounted claim: Within the last policy year if in need of monies, you can avail the discounted value by an application to the company 
 

Lump sum: Proceeds can be taken as a lump sum 
 

Settlement option: Insured can avail the maturity value paid in equal installments spread over the next 2-10 years, along with interest 
 

Conversion: Converting it into pension at prevailing rates, with refund of corpus on death

No matter what the needs are, it is essential to understand the different types of life insurance and make a wise choice. Look for an advisor, who can not only help you with taking an insurance but also guide you with the claims. The writer is director, Bharat Parekh Financial & Insurance Services