Survival Benefit

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Definition:

The survival benefit of a life insurance policy pays an amount to the policyholder when the life insured outlives the policy term, and no death claim is filed. This benefit is generally paid at the end of the premium payment term.

Description:

Vanilla life insurance plans do not offer survival benefits. Conventional life insurance policies pay the nominee in case the life insured passes away during the policy term provided all the premiums are paid. If there is no event of death of the life insured, then the policy does not return anything and the policyholder does not get any return for the years of investment made.

But some types of life insurance policies widely known as return of premium policies or money back life insurance policies offer survival benefits to the policyholders. These policies pay the death benefit to the nominees in case of life insured’s death during the policy period. If the life insured survives the policy’s premium payment duration, then the life insurance company pays a survival benefits amount to the policyholder.

A life insurance policy that is generally associated with a survival benefit:

• Term insurance with return of premium
• ULIP plans
• Endowment plans

The amount received as a survival benefit of the life insurance policy is tax-free. Policyholders do not have to pay taxes on survival benefits under section 10(10D) of the income tax act 1961.

Example:

Prateek bought a savings plan to save money for his short-term future goals. The premium payment term in the policy was 8 years, and the policy term was 15 years. After the premium payment term of 8 years was over, a benefit of Rs.1 lakh was payable to him every 3 years. This amount of Rs.1 lakh was the survival benefit for Prateek. With this money, Prateek funded his old parents’ pilgrimage expenses.

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