A money-back policy is a mix of insurance protection and interval survival benefits. The policyholder receives a percentage of the sum assured at intervals throughout the policy period. The remaining amount is paid to the policyholder at the end of the policy tenure, provided they survive the term. In case of the death of a policyholder, the sum assured is paid to the nominee regardless of the amount invested. This is probably one of the safest and most practical plans that you can add to your portfolio.
Most Valuable Benefits of a Money Back Policy
- The biggest draw of a money back policy is that it gives out money at predetermined periods during the term of the policy, offering liquidity. It can be useful for financial goals like education, marriage, or other spending plans.
- The policy goes beyond traditional life insurance policies. It requires regular premium payments by individuals. Additionally, the nominee receives the full assured amount, regardless of any survival benefits that have already been paid.
- In cases other than death, the policyholder receives the remaining amount after expiry of the tenure.
- Individuals can receive a tax exemption under Section 80C of the Income Tax Act for premiums paid. Moreover, both maturity and death benefits qualify for tax exemption under Section 10 (10D), subject to certain conditions.
- The return at the end of the policy tenure includes guaranteed components such as the sum assured and scheduled survival benefits. Bonuses, if applicable under a participating policy, are not guaranteed. This makes it a suitable choice for risk-averse investors.
Key Points to Note Before Buying a Money Back Policy
Policy Term and Payout Interval
There are different money-back policies available, which come in different terms (usually between 10 to 25 years). A policy taker should decide which tenure will provide higher returns and more affordability for the individual.
Survival Benefits and Maturity Payments
Before taking any money back policy, it is important to know the final value to be received. An individual should check if the survival benefits align with their financial goals.
Premium Charges and Affordability
Money-back policies are costlier than normal term insurance as they include an investment component and offer assured survival benefits. People must take expert advice to ensure that the premium is affordable both in the short run and long run.
Returns and Bonus Elements
Total returns on a money-back policy may be lower compared to market-linked investment options like mutual funds. But, it is important to remember that the insurance company can offer reversionary and terminal bonuses, if it is a participating policy.
Comparison with Other Plans
A term insurance plan provides greater coverage for a lower premium but lacks survival benefits. If your top priority is securing dependents financially, a term plan can be a better choice.
A money back policy is an excellent choice for those who seek insurance coverage and normal returns as well. However, before purchasing one, you must assess your payout mechanism, premium paying ability, financial needs, and total returns. Comparing different insurers’ policies and understanding their benefits will help you make an informed decision. Take your time throughout the process, and do not rush it by all means.