What is Survival Benefit?

Although a policy with a survival benefit can provide regular financial support, it is important to evaluate several factors before making a purchase. Comparing different plans helps ensure the policy suits your financial objectives, affordability, and long-term protection needs.

Your financial objectives

Start by identifying why you want a policy with survival benefits. Some individuals prefer regular income during the policy term, while others may prioritise a higher maturity benefit or larger life cover.

Consider the following:

• Whether you need periodic income or a lump sum at maturity.

• Your long-term financial responsibilities.

• Your savings and investment goals.

Premium affordability

Policies offering survival benefits often have higher premiums than pure protection plans because they combine insurance with periodic payouts.

Before purchasing:

• Ensure premiums fit comfortably within your monthly budget. 

• Compare similar plans offered by different insurers.

• Consider your future ability to continue paying premiums.

Payout frequency and amount

Different insurers offer different payout schedules. Some policies provide benefits every few years, while others may offer larger payouts at fewer intervals.

Review:

• The percentage of the sum assured paid as survival benefits.

• The timing of each payout. 

• Whether the payout schedule matches your future financial requirements.

Impact on death and maturity benefits

One important aspect many buyers overlook is how survival benefits affect the remaining policy benefits. In certain plans, the death benefit or maturity benefit may reduce after each survival payout.

Check whether:

• The death benefit remains unchanged.

• The maturity amount reduces after periodic payouts.

• Any bonuses continue to accumulate. 

Claim settlement record of the insurer

Choosing a financially strong insurer with a good claim settlement record can provide greater confidence that future claims will be processed efficiently.

Consider:

• Claim settlement ratio.

• Customer service quality.

• Financial strength of the insurer.

• Ease of policy servicing. 

Policy terms and conditions

Every insurer has different rules regarding eligibility, premium payments, surrender value, loans, and policy lapses.

Read carefully:

• Waiting periods, if applicable.

• Policy exclusions.

• Loan and surrender provisions.

• Bonus eligibility. 

• Revival conditions.

The tax treatment of a survival benefit depends on the type of life insurance policy and whether it satisfies the conditions laid down under the Income Tax Act, 1961.

In many cases, survival benefits received from eligible life insurance policies are exempt from tax under Section 10(10D), provided the policy complies with the applicable premium limits and other conditions prescribed under the Act. If these conditions are met, the amount received as a survival benefit is generally not included in the policyholder's taxable income.

However, if the policy does not qualify for exemption under Section 10(10D), the survival benefit may become taxable according to the prevailing tax provisions. Factors such as the policy issuance date, premium amount relative to the sum assured, and the type of policy can impact its tax treatment.

While exploring what survival benefits are in life insurance, it is equally important to understand its tax implications before purchasing a policy. Moreover, tax rules may change over time, and the applicability of exemptions can vary based on individual circumstances.

Therefore, reviewing the latest income tax provisions or consulting a qualified tax professional is advisable before relying on the tax benefits associated with survival benefit payouts.

A life insurance policy with a survival benefit offers more than just financial protection. It combines life cover with periodic payouts, making it suitable for individuals who want insurance as well as planned cash flow. However, like every financial product, it comes with both benefits and limitations.

Advantages of survival benefits

The following are the advantages of survival benefits:

• Regular income during the policy term: Unlike traditional life insurance policies that pay only at maturity or death, survival benefit plans provide scheduled payouts during the policy term. This can help manage recurring financial needs without liquidating investments.

• Supports long-term financial planning: The periodic payouts can be aligned with major life events such as higher education, marriage expenses, home renovation, or retirement planning, making budgeting easier.

• Continued life insurance protection: Even after receiving survival benefits, the policy generally continues to provide life insurance coverage until the end of the policy term, subject to the policy conditions.

• Encourages disciplined savings: Since these plans combine savings with insurance, they encourage long-term financial discipline while ensuring that policyholders remain financially protected.

• Provides financial flexibility: The payouts can be used for emergencies, debt repayment, investments, or meeting changing family requirements, offering greater flexibility than waiting for a single maturity amount.

Disadvantages of survival benefits

The following are the disadvantages of survival benefits:

• Higher premiums: Policies with survival benefits usually have higher premiums than pure term insurance because they provide both insurance coverage and scheduled payouts.

• Lower overall returns: Compared to investing separately in insurance and market-linked investment products, traditional survival benefit plans may generate comparatively modest returns.

• Reduced maturity benefit: In some plans, the periodic survival benefit payouts reduce the amount payable at maturity. Buyers should understand how the policy calculates the remaining maturity benefit.

• Limited availability: Not all life insurance products include survival benefits. They are generally restricted to specific savings-oriented insurance plans.

• Policy terms can be complex: The payout structure, bonuses, maturity calculations, and benefit reductions vary across insurers. Understanding all policy conditions requires careful review before making a purchase.

As discussed before, only some life insurance policies offer survival benefits, and the list includes endowment plans and money-back policies. Other than these, some life insurance policies might offer benefits under other categories that can help survival. Let us dig deeper into how survival benefits help policyholders.

Survival benefits can encourage policyholders to invest in long-term tenures for insurance policies, as they are aware that they can benefit from the additional payout after surviving a said period.

The money received as survival benefits can be utilised for different expenses, including education, medicine or healthcare, day-to-day life expenses for the second innings, etc. This way, these new savings can be utilised for short-term or long-term goals.

From the point of view of a financial portfolio, investing and purchasing insurance policies that offer survival benefits can help with better portfolio diversification for the policyholder with an efficient combination of savings and coverage from an insurance provider.