What is a Matured Endowment?

A matured endowment is an endowment life insurance policy that has reached the end of its predetermined coverage period. When an endowment policy matures, the policyholder receives the guaranteed lump sum payout from the insurance company.

What is an Endowment Policy?

An endowment policy is a type of life insurance that provides both a death benefit and a maturity benefit. Here are the key features of endowment policies:

• Temporary coverage: Endowment policies provide life insurance protection for a set period of time, such as 10, 15, or 20 years.

• Death benefit: If the insured person passes away before the endowment matures, the named beneficiaries receive the death benefit payout. This protects loved ones financially if the policyholder dies prematurely.

• Savings component: Part of the premium payments go toward building up a cash value in the policy. The insurance company invests this money to grow it over time.

• Maturity benefit: If the insured person survives to the end of the endowment term, they receive the maturity benefit – the accumulated cash value plus dividends and interest earned. This can be used for financial goals like retirement.

• Premium payments required: The policyholder must pay premiums for the entire duration of the endowment policy to keep it active and qualify for benefits.

When Does an Endowment Policy Mature?

An endowment policy matures when the predetermined coverage period ends. For example:

• If you purchase a 20 year endowment policy at age 30, it will mature when you turn 50.

• If you purchase a 15 year endowment set to expire when you turn 65, it will mature on your 65th birthday.

The maturity date is outlined in the endowment policy contract. Most policies have maturity terms ranging from 10 to 25 years.

When an endowment reaches full term, it is considered “matured” because it has fulfilled its coverage period obligation and the final payout is now accessible.

What Happens When an Endowment Matures?

When your endowment insurance policy reaches maturity, here’s what happens:

• Your life insurance coverage under the endowment policy terminates. You are no longer insured and your beneficiaries will not receive a payout.

• You (the policyholder) receive the guaranteed maturity benefit in the form of a taxable lump sum payment. This consists of:

  • The endowment sum assured or “face amount” stated in your policy

  • Vested bonuses – additional dividends your cash value earned based on the insurance company’s investment returns

  • Terminal bonus – a final dividend payment added at maturity

• The insurance company pays income tax on the maturity benefit amount on your behalf before disbursing the funds. You do not have to pay additional taxes.

• You are free to use the maturity payout however you wish. Many people put this money toward retirement or other savings goals they funded the endowment for initially.

• Your obligations under the endowment insurance contract are concluded. You no longer have to pay premiums to keep the coverage active.

The amount of the maturity benefit can be well in excess of the premiums paid over the coverage period. But the death benefit and guaranteed cash value make endowment policies more expensive than term insurance.

Maturity Benefit Calculation

The exact maturity benefit paid out depends on the specifics of your endowment policy:

• Sum assured amount: Also called the face amount or guaranteed benefit, this is the minimum payout stated in the policy. It is based on the death benefit amount.

• Dividends and bonuses: These are extra credits added to the policy based on the insurance company’s investment performance. Dividend options include:

  • Reversionary bonuses – dividends added periodically at the close of each bonus term

  • Terminal bonus – additional dividend paid at maturity

  • Paid-up additions – dividends used to purchase additional insurance coverage

• Extra coverage additions: If dividends were used to buy paid-up additions, the cash value of these additions is included in the maturity payout.

• Time period: longer endowment terms allow more time for cash value to build up.

• Interest rates: Higher interest rates enable faster growth of the policy’s cash value each year.

• Investment performance: Better investment returns for the insurance company mean higher dividends for your endowment.

So the maturity benefit is the sum of the guaranteed face amount, vested reversionary bonuses, terminal bonus, paid-up additions cash value, and any interest/dividends credited. This total lump sum is paid out tax-free.

What If the Insured Person Dies Before Maturity?

If the insured individual passes away before the endowment reaches full term, the beneficiaries receive the death benefit rather than the maturity benefit.

The death benefit amount is specified in the policy and may be higher than the guaranteed maturity value. It is paid out as long as the endowment policy is active and in good standing at the time of death.

Any cash value built up is forfeited back to the insurance company. Paid-up additions and vested reversionary bonuses may be included in the death benefit amount. But terminal bonuses are only added if the endowment survives to maturity.

Maturity Options: Lump Sum or Income?

Instead of a lump sum payment, some endowment policies let you opt to receive the proceeds as income after maturity.

For example, you may choose to receive a portion of the maturity value annually over the next 20 years. This provides a stream of retirement income.

If the income option is elected, the insurance company will make periodic payments until the maturity fund is depleted. If the insured dies before the full amount is paid out, the remainder goes to the named beneficiaries.

What Happens if the Endowment Lapses?

Policyholders must continue paying the premiums until the endowment matures. If you stop making payments, the policy can lapse. This causes the life insurance coverage to terminate.

If the endowment lapses, you forfeit your right to the maturity benefit. However, you may qualify for a reduced, non-forfeiture cash value surrender amount based on how long you paid premiums and the policy type.

Before letting an endowment lapse, consult your insurance agent about options like taking a loan against the cash value to reinstate the coverage. Letting the policy lapse should be a last resort.

Can You Surrender the Endowment Before Maturity?

Some situations may force you to surrender the endowment policy early and take the cash value. For example, financial hardship or needing funds for an emergency expense.

When you surrender an endowment prematurely, the insurance company will pay out the current cash value amount. This is typically lower than what you’d get by waiting for full maturity.

By surrendering, you lose the remaining life insurance coverage and any future dividends. Consider alternatives like policy loans or reduced paid-up insurance before opting to surrender.

Maturity Benefits and Taxes

The maturity benefit lump sum payment from an endowment policy is taxable income. However, you don’t have to actively pay extra taxes when you receive the payout.

Here’s how endowment maturity benefits are taxed:

• The insurance company will deduct applicable income taxes on the maturity value before paying you the proceeds.

• You only owe income tax on the amount that exceeds your total premium payments. This is considered growth or capital gains.

• The insurer sends you a maturity proceeds statement detailing the taxes withheld and net amount paid.

• You do not need to declare the income or pay additional tax after receiving the net payout from the insurance company.

• If you choose to receive maturity income payments instead of a lump sum, each installment is taxable in the year you receive it based on income tax brackets.

The same tax treatment does not apply if you surrender the endowment early or let it lapse. In those scenarios, you must pay applicable taxes owed on the full cash value amount individually.

How to Track Endowment Policy Status

It is important to monitor your endowment insurance periodically to ensure it stays active and know when it will mature. Here are some tips:

• Review annual statements – Endowment insurers send yearly statements showing your premiums paid, current cash value, dividends earned, and projected maturity value. Look for maturity date confirmation.

• Check your policy paperwork – Your endowment policy contract and brochures should have the exact full term period and maturity date listed. Mark it on your calendar.

• Contact your agent – Discuss the maturity timeline for your policy with the agent who sold you the endowment initially. Have them explain projections.

• Check online – Many insurance providers let you register online to view real-time details about your endowment policy status and track its value.

• Call customer service – The insurance company’s customer service team can provide information about an endowment policy, including when it is set to mature.

• Pay attention to premium notices – Premium due reminders sent by the insurer when a payment is approaching often state the number of years remaining on the endowment term.