Money Back Policy

What is a Money-Back Policy?

A money-back policy is a type of one-time investment plan that provides financial protection and regular returns. Under this policy, a certain percentage of the sum assured is paid out to you at regular intervals during the policy term. These payments are known as “survival benefits” and are disbursed regardless of whether the policyholder is alive or not at the time of payout.

This policy combines life insurance coverage with periodic payouts, giving you the best of both worlds. The amounts you receive can fund essential life events like your child’s education, a wedding, buying a new home, or achieving other financial milestones.

How Does a Money-Back Policy Work?

Now that you have a basic idea of what the best money-back policy is, let’s break down how it works in a bit more detail:

• Combination of protection and returns: The best money-back policy combines life insurance coverage with regular payouts during the policy term.
• Flexible premium payment: You can choose to pay the premium in one lump sum or in regular installments.
• Recurring payments with added benefits: The premium payments are similar to recurring deposits, except this one also includes life cover.
• Survival benefits during the term: At specific intervals during the policy period, the insurer pays you a portion of the sum assured. These are called survival benefits.
• Liquidity advantage: These payouts provide periodic liquidity, helping you meet expenses while being covered.
• Maturity benefit at the end: Once the policy term ends, you receive the remaining sum assured as a maturity benefit, along with any accrued bonuses or incentives.
• Full death benefit for nominees: If the policyholder passes away during the policy period, the nominee receives the assured sum, regardless of any survival benefits already paid out.
• Dual advantage: It makes money-back policy a smart choice for those looking for financial security and steady income during the term.

Example of Money-Back Policy

Let’s say Ramesh, a 35-year-old professional, purchases a 20 year money-back insurance policy with a sum assured of ₹10 lakhs. He pays an annual premium of ₹50,000.

Here’s how the policy might work:

• Policy Term: 20 years
• Sum Assured: ₹10 lakhs
• Survival Benefits: 20% of the sum assured paid at the end of the 5th, 10th, and 15th year
• Maturity Benefit: Remaining 40% of the sum assured + bonuses paid at the end of the 20th year
• Death Benefit: If Ramesh passes away at any point during the policy term, the nominee gets the full ₹10 lakhs (regardless of any survival benefits already paid)

Why Do You Need to Buy Money-Back Policy?

A money-back insurance policy is a reliable way to ensure financial security for you and your family. It is like having a financial partner that grows with you, and here is why you might need one:

• Unlike traditional insurance plans that only pay a lump sum at the end, a money return policy provides regular payouts during the policy term. These payouts can help you cover recurring expenses or fund short-term financial goals.
• This policy protects your family’s future with life insurance coverage and ensures guaranteed returns on your investment. You have a safety net to fall back on while earning a steady income.
• Money-back policies can be tailored to suit your needs. For example, if you are planning for your child’s future, a child’s money-back plan can provide financial support for their education or other milestones.
• A money-back life insurance scheme is ideal if you prefer low-risk investment plans. It offers stable returns without the uncertainties of market-linked investments, giving you peace of mind.

Benefits of a Money-Back Policy

Understanding the benefits of money-back plans can help you assess whether a money-back policy aligns with your financial goals and needs.

Added Bonus

One significant advantage of a money return policy is the potential for bonuses. These bonuses are additional amounts added to the sum assured over the policy term. Reversionary bonuses are declared annually and paid out periodically, enhancing the overall returns. Terminal bonuses, on the other hand, are paid at the end of the policy term, further boosting the maturity benefit.

Comes with a Low-profile Risk Instrument

Money-back policies generally offer guaranteed returns and involve lower risk than pure investment instruments like stocks or mutual funds. The guaranteed nature of survival benefits and the sum assured provide financial security, making them suitable options for conservative investors or those looking to balance risk and reward.

Secondary Source of Income

The periodic survival benefits a money-back life insurance policy provides are a secondary source of income during the policy term. These regular payouts can supplement your monthly income, meet ongoing financial needs, or finance your short-term goals without liquidating other investments.

Life Cover

Beyond the financial returns, a money return policy provides essential life insurance coverage. In the unfortunate case of your demise during the policy term, your beneficiaries will receive the sum assured as the death benefit. This ensures that your family members are financially protected and can maintain their lifestyle without you as their primary breadwinner.

Tax Benefits

Money-back policies offer tax benefits on paid premiums and received payouts. Premiums paid towards the policy are eligible for tax deductions under Section 80C of the Income Tax Act up to a specified limit. Additionally, the maturity benefits and death benefits received under the policy are usually tax-free under Section 10(10D), subject to conditions.

Key Features of Money-Back Policy

Understanding the key features of a life insurance policy can help you make informed decisions about your financial planning and protection needs.

Guaranteed Returns

Money-back policies provide guaranteed returns through periodic payouts and a maturity benefit. So, you receive survival benefits during the policy term regularly, ensuring a steady income stream while the policy is active.

Life Coverage

One of the primary purposes of a money-back life insurance policy is to provide life coverage. In the event of your death during the policy term, your beneficiaries receive the full sum assured as the death benefit, ensuring financial security for your loved ones.

Bonus and Additions

Many money-back policies offer bonuses, additional amounts added to the sum assured. These bonuses can be reversionary (added periodically) or terminal (added at the end of the policy term), enhancing the overall returns for the policyholder.

Flexibility

Money-back policies offer flexibility regarding premium payments, policy terms, and coverage options. You can choose the premium payment frequency (annually, semi-annually, quarterly, or monthly) and customize the policy to suit your financial goals and needs.

Regular Payouts

A distinctive feature of money-back policies is the regular payouts or survival benefits provided to you at specified intervals during the policy term. These payouts help meet short-term investment plans or goals and provide liquidity.

Survival Benefit

Survival benefits are the periodic payouts made to the policyholder if they survive the specified intervals during the policy term. These benefits are typically a percentage of the sum assured and are paid out regardless of whether you have made a claim.

Maturity Benefit

If you (the policyholder) survive the entire policy term, you receive the maturity benefit, the remaining sum assured, and any accumulated bonuses. This lump sum can be used to fulfill long-term financial goals or provide retirement income.

Death Benefit

In the unfortunate event of the policyholder’s death during the policy term, the beneficiaries receive the death benefit, which is the assured sum. This ensures that your family members are financially protected and can maintain their standard of living.

Guaranteed Surrender Value

Money-back policies typically have a guaranteed surrender value, the minimum amount payable if you decide to surrender the policy before maturity. This provides a measure of financial security and flexibility for the policyholder.

Income during the Policy Term

Money-back policies provide income during the policy term through survival benefits and periodic payouts. This regular income stream can be beneficial for meeting ongoing financial obligations, funding education, or supporting lifestyle needs.

Add-on Riders

You can enhance your money-back policies with add-on riders or endorsements to customize coverage further. Riders may include options for critical illness coverage, accidental death benefit, premium waiver in case of disability, and more, providing comprehensive protection.

Who Should Buy a Money Back Plan?

A money back plan is ideal for individuals who value both protection and periodic liquidity. Here’s who can benefit most:

• Young Families: Those looking to secure their family’s future while maintaining access to funds at regular intervals.
• Conservative Investors: Individuals who prefer stable, guaranteed returns over high-risk investments.
• Retirees and Pre-Retirees: People seeking a reliable income stream during retirement without the unpredictability of market-linked options.
• Disciplined Savers: Long-term planners aiming to align periodic payouts with key life milestones such as education or home purchase.
• Tax-Conscious Individuals: Those who wish to avail tax advantages while building a financial cushion.
• Financial Security Seekers: Anyone looking to combine insurance with consistent returns for added peace of mind.

How to Choose the Best Money-Back Policy?

A money back policy provides periodic payouts and life coverage, making it an attractive option for you if you want to balance your savings and insurance. To ensure you select the best policy for your needs, evaluate the following aspects:

Financial Goals

Money back policies are suitable for both long-term financial planning and short term investment plans. For example, if you are looking to fund upcoming goals such as buying a car or making a down payment on a house, the regular payouts can offer timely support. It is important to evaluate your short and long term objectives before choosing a plan that aligns with your financial needs.

Coverage

Consider factors like your family’s standard of living, living expenses, and contribution to the total family income when determining the sum assured amount. This amount should cover your family’s immediate and long-term needs.

Policy Term

It is crucial to thoroughly read the terms and conditions of a money back policy before finalizing it. There can be various exclusions that are not prominently displayed in advertisements. Understanding all the terms and conditions will help you know the consequences of different situations you may face.

Premium Amount

The premium amount is another critical factor that you need to consider. Choose a premium that does not become a financial burden on you and ensure that it fits within your budget.

Riders

Some insurance requirements, such as critical illness coverage and accidental death coverage, may not be included in the base policy. Select riders wisely based on your financial needs and affordability to enhance your policy coverage.

Company’s Claim Settlement Ratio

Check the claim settlement ratio of the insurance company. This percentage reflects how many claims the company has settled out of 100. A higher ratio increases the likelihood that your claim will be settled promptly and efficiently.

Fixed Deposit (FD) and Money-Back Policy

Regarding financial planning, choosing between an FD and a money back policy involves understanding their respective features, benefits, and suitability for your financial goals. Here is a comparison of the two:

Eligibility Criteria for Buying a Money Back Plan

Before you jump in to get a money back insurance plan, it is helpful to know if you meet the basic eligibility requirements. These criteria ensure that the policy is a suitable fit for your circumstances.

The individual should be between 18 and 55 to 65 years old, with the specific age range varying by insurer, to be considered eligible for a money back policy. Additionally, the individual must have a stable income and be capable of paying the insurance premium on time. If you meet these criteria, you can proceed and buy a money back policy.

Things to Consider Before Buying a Money-Back Plan

So, now you are thinking about getting a money back insurance plan? That is great now that you know what is money back policy, its functioning and its advantages. They can be a good option if you want some regular income along with the chance to grow your money. But before you jump in, here are a few things to think about:

• Make sure you really understand how these plans work. It is not as simple as just putting money in and getting it back. There are specific rules about when and how much you get back.
• Think about what you are hoping to get out of this. How much money do you want back and when? Does this plan actually offer that?
• Be sure about how much risk you are comfortable with. Money back insurance plans are generally low risk, but that also means they might not grow your money as fast as other options.

Is Money-Back Policy a Good Investment for You?

A money-back plan can be a good investment if you are looking for a low-risk way to save money and get life insurance coverage at the same time. These plans are a safe way to save for the long term, and they mainly invest in government bonds and other safer options.

One of the good things about money-back scheme plans is that you get some of your money back at regular intervals. This makes them a bit more flexible than other long term investment plans . Plus, the returns you get are usually tax-free.

If you are a cautious investor who wants a guaranteed return on your investment and some life insurance protection, a money back plan could be a good choice for you. Just keep in mind that the returns on these plans are generally lower than what you might get from riskier investments like mutual funds.

Overall, a money-back policy can be a good option for some people, but it is important to weigh the pros and cons to see if it is the right fit for your needs and financial goals.

FAQs on Money Back Policy