A money-back insurance policy, also known as a cashback policy, is a type of insurance policy that returns a certain percentage of the premium paid by the policyholder if they do not make any claims during the policy term.
Key takeaways
- In a money-back life insurance plan, a policyholder is entitled to receive regular payouts as well as a death benefit.
- This type of policy guarantees a certain amount of money to be paid back to the policyholder in regular intervals or as a lump sum at the end of the policy term.
- Investors can earn a guaranteed return on their investment along with a life insurance cover.
- Money-back plans offer income at regular intervals after a certain period of the policy term.
- In addition to the basic coverage and the premium return, money-back policies also offer optional covers and riders that can be added to the policy for an extra fee.
Money-back plans are one of the popular life insurance policies in India, as they offer a certain lump sum amount in return. There are other good life insurance policies too, but they serve different purposes. In the insurance dictionary, these plans often fall under endowment plans.
In this article, we will cover money-back plans and whether these are helpful or not. We would also cover what are these and help you understand the benefits.
What is a Money-Back Plan?
In a money-back insurance policy plan, a policyholder is entitled to receive regular payouts as well as a death benefit. If you invest in these plans, you will keep receiving a small amount at regular intervals.
This insurance policy is the right choice for those who want a guaranteed return on their investment while having the option of a regular payout. When opting for a money-back life insurance policy, one can get all this in addition to insurance coverage in the same premium amount paid for the plan.
Additionally, the best part about money-back policies is that they pay lump-sum amounts after maturity or in the event of the policyholder’s demise. Money-back plans start paying survival benefits over the lifetime of the plan, which is a great benefit. The survival benefit is only given if the policyholder survives the term, and the payment for it starts after a few years of starting the policy. After that, the policyholder keeps getting survival benefits until the money-back plan reaches its maturity.
Top Features of a Money-Back Policy
Money-back policies have numerous benefits linked to them. For starters, investors can earn a guaranteed return on their investment along with a life insurance cover. Let us take a look at the top benefits of investing in money-back policies:
Offers Guaranteed Returns
The money-back policy is an excellent option for those looking for a purely safe and secure investment. As it offers guaranteed returns in addition to insurance, it is great for buyers who prefer low-risk investments with good returnsThe money-back policy is an excellent option for those looking for a purely safe and secure investment. As it offers guaranteed returns in addition to insurance, it is great for buyers who prefer low-risk investments with good returns00..
Acts as a Second Source of Income
Money-back plans offer income at regular intervals after a certain period of the policy term. This benefit is known as the survival benefit. What is a survival benefit, though? Let us help you understand that with an example.
Survival benefit is offered by insurance policies that have different premium payment and policy terms. Let us say you have invested in a money-back policy that has a policy term of 25 years. However, the premium payment term for this policy is 18 years. In this case, you will receive a survival benefit after 18 years.
Maturity Payment
Money-back policies offer both insurance and guaranteed returns. The returns at maturity are secured and guaranteed. The policyholder gets the amount they were promised at the beginning of the policy. Maturity payment is paid to the policyholder if the policyholder survives the policy term.
Payment in the Event of Death
A money-back policy works like traditional insurance too. Thus, in case of an unfortunate demise of the policyholder, the nominee gets the sum assured in addition to other bonuses (if any) that the company may pay to the family members (nominee). The death benefit reaches the nominee/spouse as a lump sum payout.
Optional Covers and Riders Available in Money-Back Policy
A money-back insurance policy is a type of life insurance policy that not only provides life coverage but also returns a portion of the premium paid during the policy term. This type of policy is popular among individuals who want a combination of protection and savings.
In addition to the basic coverage and the premium return, money-back policies also offer optional covers and riders that can be added to the policy for an extra fee. These options can provide additional benefits and financial protection tailored to meet specific needs.
Let us take a closer look at some of the optional covers and riders available in a money-back policy:
Critical Illness Rider
This rider provides financial protection in case the policyholder is diagnosed with a critical illness like cancer, heart attack, or stroke. In such cases, the policyholder can receive a lump sum payout to cover medical expenses, loss of income, and other related expenses.
Accidental Death and Disability Rider
This rider provides additional coverage in case the policyholder dies or becomes disabled due to an accident. The rider provides a lump sum payout to cover medical expenses, loss of income, and other related expenses.
Waiver of Premium Rider
This rider waives the premium payments in case the policyholder becomes disabled or is unable to work due to an accident or illness. This ensures that the policy continues to provide coverage even if the policyholder is unable to pay the premiums.
Income Benefit Rider
This rider provides regular income payments to the policyholder in case of disability or critical illness. This can help cover living expenses and other financial obligations while the policyholder is unable to work.
Term Rider
Term rider provides additional coverage for a specific period, typically for the duration of a loan or mortgage. This ensures that the policyholder’s family is protected in case of the policyholder’s untimely demise while the loan or mortgage is still being paid off.
What Do You Need to Understand Before You Buy a Money-Back Policy?
While a money-back policy may seem like an attractive investment, there are a few things you should consider before making a purchase.
Policy Term
The policy term of a money-back policy can range from 10 to 25 years. It is crucial to choose a policy term that aligns with your financial goals and objectives.
Premium
The premium of a money-back policy is usually higher than a traditional life insurance policy. You should assess your financial situation and ensure that you can afford the premiums for the entire policy term.
Payouts
The payouts of a money-back policy are not guaranteed and depend on the insurance company’s performance. It is essential to understand the policy’s terms and conditions and the payout structure before making a purchase.
Tax Implications
The payouts received from a money-back policy are subject to tax. It is essential to understand the tax implications before purchasing a policy.
Last Words
There are various other benefits and drivers linked to money-back policies and other saving plans. These policies are beneficial for those wanting guaranteed returns along with insurance. Understand your long-term financial requirements before you start investing in them. Money-back policies can be a good source of returns, especially if you invest in them early.
