What Happens When the Policy Matures?
Once the policy matures, you get all the premiums you paid without any interest as the maturity benefit. This is called the Return of Premium feature in term life insurance. It is not a common feature but can be enjoyed by those policyholders who opt for it.
Several policies offer cash value while the policyholder is still alive, such as permanent life insurance or universal life insurance policy. The other benefits provided by term life insurance are as follows:
- Tax Benefit: Once you get the money you invested in the insurance policy, you don't have to pay any tax on it. By purchasing a policy, you get tax benefits on the insurance money while you are paying premiums as well as when you get returns from it.
- Capital for another investment: In the end, you get the hefty amount that you can reinvest in your retirement plan, or you can purchase another policy.
- Transferable corpus: Once you get your insurance money back, there are no restrictions on how you want to spend that money. You can keep it with yourself or you can pass it on to your heirs.
Cash Value in Life Term Insurance Policy
If you get a permanent cover insurance policy, you are eligible for the cash value on your life term insurance policy. Cash value is the amount you receive during your insurance tenure that you can withdraw or use to pay premiums. You can use cash value without jeopardizing your insurance coverage. However, most term insurance policies don't give cash value on the term life insurance.
Benefits of Term Insurance Policy
You may not get direct cash value from your term insurance policy, yet there are multiple ways you can use your term life insurance policy to yield finance for you.
Listed below are the ways to gain money from your policy:
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Complete Policy Surrender
Once you surrender your policy, you get all the money you have paid as a premium. You also get the interest you have earned on the payments you made on it. However, you must understand that you may get monetary returns in this way, but you will lose your coverage.
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Partial Policy Surrender
Partial Policy Surrender or timely withdrawals you make from your insurance policy impact your returns. Many insurance companies allow policyholders to withdraw money from the policy on a timely basis for reasons such as educational expenses and down payments. However, when you make frequent withdrawals like these, it significantly reduces death benefits and policy returns.
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Loan Against Insurance Policy
Many banks or Non-Banking Financial Companies (NBFCs) allow a term life insurance policy as collateral for the loan. If the loan is unpaid at the time of the policyholder's death, all unpaid amounts will be deducted from the death benefit. Taking a loan against an insurance policy can also impact policyholders' CIBIL score negatively, which can lessen the chances of getting a loan sanctioned in the future.
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Using Term Insurance Policy as a Settlement
If you want to make a settlement and you are low on funds, you can sell your insurance policy to any individual as a payment. Selling an insurance policy is a simple process. However, you will be devoid of insurance coverage. The person buying your policy can surrender or keep it by paying all the outstanding premiums. After repurchasing the policy, the new policyholder will be eligible for all the benefits of the policy.
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Insurance Policy as Collateral on Home Loan
If you do not want to keep your property like a mortgage or collateral with your bank or NBFC for taking loans, your term insurance policy will be the best financial instrument at your disposal. Most banks accept one or more insurance policies as the collateral on the home loan.
You must remember that the policyholder should also be the co-owner and primary applicant on a home loan. In case of the policyholder's death, the insurance policy's death benefit will be reduced to repay the home loan.
In Conclusion
Purchasing a term life insurance plan always benefits the policyholder in more than one way. In your absence, it will provide for your family. Though it lacks the feature of providing cash value like any other permanent life insurance policy, it can still benefit you.
If you have a term insurance policy and feel the need for cash, you can always turn to the methods mentioned in the article to meet your requirements.
