How to Calculate Maturity Benefit of a Money Back Plan
To calculate the maturity benefit of a money back plan, you add the full Sum Assured to the total accumulated bonuses and any final additional bonus. The survival benefits you received during the policy term are not deducted from this final amount.
How to Figure Out Your Money Back Plan's Maturity Payout
A money back plan is a popular type of life insurance that gives you money at regular intervals during the policy term. When the policy ends, you receive a final lump sum called the maturity benefit. Calculating this final amount can seem complex, but it's straightforward once you understand the parts that make it up. The final payout is a combination of the sum assured and any bonuses declared by the insurer.
Understanding this calculation helps you plan your finances better. You will know exactly what to expect when your policy matures. Let's break down the process into simple, easy-to-follow steps.
Step 1: Understand the Key Components
Before you can calculate anything, you need to know the terms used in your policy document. These are the building blocks of your maturity benefit.
- Sum Assured: This is the guaranteed amount that your policy provides. In case of the policyholder's death, the nominee receives this amount (or more). It is also the base amount used to calculate your final maturity benefit.
- Survival Benefits: These are the regular payments you receive during the policy term. For example, a 20-year policy might pay you 20% of the sum assured every five years. A common misconception is that these payments are deducted from your final amount. They are not. They are paid to you in addition to the full maturity benefit.
- Vested Simple Reversionary Bonus: This is an additional amount the insurance company adds to your policy each year. It is a share of the company's profits. This bonus is not guaranteed and depends on the insurer's performance. Once declared, it becomes a guaranteed part of your benefits.
- Final Additional Bonus (FAB) or Terminal Bonus: This is a one-time bonus paid at the time of maturity or death. It is also not guaranteed and is a reward for staying with the policy for the full term.
Step 2: Find Your Basic Sum Assured
The first piece of the puzzle is the Sum Assured. This is the core amount of your insurance policy. You can find this figure clearly stated on the first page of your policy document. It is the foundation for all other calculations, so make sure you have the correct number.
Step 3: Confirm Your Survival Benefits (and Ignore Them for Now)
Check your policy schedule to see the percentage and frequency of your survival benefits. For instance, it might say "15% of Sum Assured at the end of year 4, 8, and 12." While it's good to know what you have received, remember this crucial point: survival benefits already paid out do not reduce your final maturity amount. The full Sum Assured is still payable at maturity.
Step 4: Calculate the Total Accumulated Bonus
The bonus is usually declared as an amount per 1,000 rupees of the Sum Assured. For example, the insurer might declare a bonus of 45 rupees per 1,000 Sum Assured for a particular year.
To calculate the bonus for one year:
(Sum Assured / 1000) * Bonus Rate
You need to do this for every year of the policy term. The total accumulated bonus is the sum of all the bonuses declared from the start of your policy until its maturity.
Your annual policy statement usually shows the total bonus accumulated to date. This makes it easier to track.
Step 5: Add the Final Additional Bonus (If Applicable)
Not all policies offer a Final Additional Bonus (FAB), also known as a terminal bonus. If your policy does, the insurance company will declare this amount at maturity. It is a one-time payment and you can find out the likely rate from the insurer or your policy's benefit illustration.
Step 6: Put It All Together: The Maturity Benefit Formula
Now you have all the pieces. The final calculation is simple addition.
Maturity Benefit = Sum Assured + Total Accumulated Bonuses + Final Additional Bonus (if any)
Let's look at a detailed example to see how this works in practice.
A Real-World Example of a Maturity Benefit Calculation
Let's imagine a person named Priya bought a money back plan with the following details:
- Policy Term: 20 years
- Sum Assured: 10,00,000 rupees
- Survival Benefit: 20% of Sum Assured at the end of years 5, 10, and 15.
- Assumed Bonus Rate: 40 rupees per 1,000 Sum Assured each year.
- Assumed Final Additional Bonus: 15 rupees per 1,000 Sum Assured.
Payments During the Policy Term (Survival Benefits)
Priya receives the following payments while the policy is active:
- End of Year 5: 20% of 10,00,000 = 2,00,000 rupees
- End of Year 10: 20% of 10,00,000 = 2,00,000 rupees
- End of Year 15: 20% of 10,00,000 = 2,00,000 rupees
Total received during the term = 6,00,000 rupees.
Calculation at Maturity (End of Year 20)
- Sum Assured: The full 10,00,000 rupees is payable.
- Total Accumulated Bonus:
- Bonus per year = (10,00,000 / 1000) * 40 = 40,000 rupees
- Total bonus for 20 years = 40,000 * 20 = 8,00,000 rupees
- Final Additional Bonus (FAB):
- FAB = (10,00,000 / 1000) * 15 = 15,000 rupees
Total Maturity Payout = Sum Assured + Total Bonus + FAB
Total Maturity Payout = 10,00,000 + 8,00,000 + 15,000 = 18,15,000 rupees
So, at the end of 20 years, Priya receives 18,15,000 rupees. This is in addition to the 6,00,000 rupees she already received as survival benefits.
Common Mistakes to Avoid
People often make a few common errors when trying to estimate their maturity benefit. Be sure to avoid these:
- Subtracting Survival Benefits: This is the most frequent mistake. Never deduct the survival benefit payments from your final sum assured. They are separate, additional payments.
- Treating Bonuses as Guaranteed: The bonuses in your benefit illustration are just that—an illustration. The actual bonus depends on the insurer's profits and can be higher or lower.
- Ignoring Policy Documents: Relying on verbal promises from an agent is risky. Always refer to your official policy document and the benefit illustration for the terms and conditions.
Frequently Asked Questions
- Are the maturity benefits from a money back plan taxable?
- In India, under Section 10(10D) of the Income Tax Act, the maturity proceeds from a life insurance policy, including a money back plan, are typically tax-free. This is subject to conditions, such as the premium not exceeding 10% of the sum assured for policies issued after April 1, 2012.
- Do the survival benefits I receive reduce my life insurance cover?
- No, they do not. If the policyholder passes away during the policy term, the nominee receives the full Sum Assured plus any accumulated bonuses, regardless of how many survival benefit payouts have already been made.
- What happens if I cannot pay a premium for my money back plan?
- If you miss a premium payment after paying for a few years (usually 2-3 years), the policy acquires a 'paid-up value'. It will continue with a reduced Sum Assured, and you will not receive future bonuses. It's always best to pay premiums on time to get the full benefits.
- Are the bonuses in a money back policy guaranteed?
- No, the bonuses are not guaranteed. They depend on the profits of the insurance company. The benefit illustration provided at the time of purchase shows potential returns at assumed rates (e.g., 4% and 8%), but the actual bonus can vary.