A call by an insurance agent left Prakash with some unanswered questions related to survival benefit. He posed them to his trusted financial advisor, Sangeetha.

Prakash: An agent called me about a child insurance plan. While pitching the product, he mentioned that survival benefit will be paid as a certain percentage of sum assured. Shouldn't the survival benefit be larger?

Sangeetha: Survival benefit is similar to maturity benefit. In plans that offer survival benefit, it is a risk-free sum generally paid out as a share of sum assured, at intervals. Typically, 20-30 per cent.

Prakash: Okay. So, survival benefit and maturity benefit are two different things?

Sangeetha: Yes. Some people use the two terms interchangeably, adding to the confusion. Maturity benefit is paid out to the policyholder at the end of the policy term, when the policy matures. In case of survival benefit, the payment happens at the end of the premium payment term. There are many policies where the policy term is 20 years but premium payment is for 15 years. In these cases, the survival benefit may be paid after 15 years in phases, and not after 20 years.

Prakash: Which policies offer survival benefits?

Sangeetha: Savings plans can offer survival benefits, but not all of them do. It depends on the specific plan.

Prakash: Okay. The agent was pitching a money-back policy that pays out survival benefits at regular intervals.

Sangeetha: Money-back is a savings plan. Generally, payouts start after the premium payment term ends, and continue at regular intervals for a specific period.

Prakash: So, can I defer survival benefit?

Sangeetha: Some policies offer that option. In that case, the policyholder can get increased survival benefit i.e. deferred original survival benefit along with interest. If the increased survival benefit is not taken by the policyholder during the currency of the policy, it is paid out later along with maturity benefit.

Prakash: My friend was saying there is one policy that pays 103 per cent of premium as survival benefit. Is this possible?

Sangeetha: I know what you are referring to. But its not 103 per cent of all premiums paid. It is 103 per cent of one annual premium as survival benefit!

Prakash: Smart use of words! Any tax sop on survival benefit received?

Sangeetha: Like maturity benefit, survival benefit is exempt from income tax under Section 10 (10D).

Prakash: Cool. Now that I know how survival benefits work, I will keep an eye out for this feature.

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