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Life Insurance with Money Back vs Without Money Back

Long-term fixed deposit (FD) investment enables you to accumulate a sizable corpus. Here is where you can benefit from a money-back guarantee.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

People are often torn between choosing a money back term plan for protecting their family and an insurance plan that benefits them when they are alive. It is indisputable that there is no winner in this contest since everyone has diverse requirements and wants to invest in a scheme that meets all of them efficiently.

While we all want our insurance plans to protect our family to the greatest extent, the choice between getting money back policy or putting in all our premiums just so your family can stay secure in your absence is a choice we need to take once you learn about the pros and cons of both.

Key takeaways

    Advantages of money-back policy

  • Offers liquidity and consistent payouts
  • Additional Advantage
  • Tax advantages
  • A safe investment
  • Risk-free investment

Let’s examine the differences between life insurance with a money-back plan and one without it so you can make the best decision possible!

Term life insurance is the most basic kind of life insurance. In the event of your untimely death during the term of the policy, the insurer pays your family a predetermined amount, ensuring that your loved ones are well cared for and have adequate financial support. This way, they can manage their expenses with the help of the death benefit.

What is a money-back policy?

A money-back policy is an endowment plan that consolidates investing and insurance into one bundle where the policyholder gets an aggregate sum known as survival benefit at set intervals. The last payout is made towards the end of the plan’s term.

Apart from the survivor benefit, the policyholder gets incentives during the course of the policy’s term. If a policyholder dies during the policy is still active, the beneficiaries are liable to the death benefit and any incentives earned throughout the policy’s lifetime.

Advantages of money-back policy

A money-back policy, as the name implies, returns money in the form of consistent payouts over the policy term established by the insurance provider. The life insured may get a lump sum payment at maturity. Money-back policies have a number of benefits, some of which are.

Offers liquidity and consistent payouts

The Money-Back Policy’s primary benefit is that it offers consistent payments known as survival benefits. Liquidity is important in long-term policies (15 to 20 years). At maturity, the remaining benefits are paid.

Additional advantage

Some money-back policies might also provide guaranteed additions to the coverage or additional money-backs as additional benefits.

Tax advantages

For premiums paid toward a money-back policy, a person may be qualified for a tax deduction under section 80C of the Income Tax Act of 1961 of up to ₹1.5 lakh.

A safe investment

As the returns are guaranteed, they are safe investments independent of market conditions or the status of the government. There are no dangers associated with reinvesting; whatever the insurer has promised to pay you in writing will be guaranteed to be paid out at maturity. As a result, it protects your funds and keeps your portfolio’s total risks low.

Risk-free investment

Some money-back policies might also provide guaranteed additions to the coverage or additional money-backs as additional benefits.

Risk-free investment

Contrary to other financial assets like bonds and mutual funds, which are directly impacted by stock market fluctuations. A low-risk instrument, the money-Back Policy offers guaranteed returns at predetermined intervals throughout the tenure.

Life coverage

It is a life insurance policy that offers a variety of options so you can match the family’s financial needs. This strategy enables your family to lead a respectable life without you.

Parameters to Draw a Contrast Between Life Insurance vs Money Back Insurance Policy

Life Cover

Without Money Back

In the unfortunate event of the policyholder’s death, the family is entitled to a cash payment as a death benefit. Loved ones can choose whether they want the compensation paid in a single lump-sum payment, monthly or yearly.

With Money Back

For the same payment, money-back insurance plan provides a smaller coverage to the family as it is primarily for the insured while they are still alive.

Tax Benefits

Section 80C and Section 10(10D) of the Income Tax Act, 1961 place both money-back term insurance plan and without-money back policy on an equal footing, making them both eligible for tax-saving advantages.

Investment Compensation

Without Money Back

It does not provide a payout when it matures. This implies that even if the policyholder survives the period, no money is refunded to them or the listed beneficiaries. Until a person has chosen an insurance policy with a refund of the premium policy, in which case the interest paid is reimbursed to the policyholder at the end of the life of the policy.

With Money Back

A person who survives the stipulated period of a money-back life insurance plan receives a proportion of the sum assured as money-back payments if they live through the stated duration. Bonuses are also available to the life insured when they are announced from time to time. These bonuses are accumulated during the policy’s entire term and paid out with the final payment under the money return plan.

Wrapping up

To sum up, life insurance with or without a money-back guarantee is both beneficial insurance policies. You must first determine your financial requirements, compare different financial instruments and then choose the best plan for yourself and your family before making a decision.

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Ref. No. KLI/22-23/E-BB/2435

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- A Consumer Education Initiative series by Kotak Life