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Money Back Policy

A money back policy is a life insurance plan that provides the dual benefits of insurance coverage and periodic payouts during the policy term. It ensures financial security by offering life cover and guaranteed returns at regular intervals, making it a reliable investment and savings plan for long term goals.

  • 8,777 Views | Updated on: Mar 05, 2025

What is a Money Back Policy?

Money back policy meaning, a unique type of life insurance policy that provides periodic payments, or survival benefits, to the policyholder during the policy term, along with death and maturity benefits. Unlike traditional life insurance policies, which typically offer a lump sum payment at the end of the policy term or upon the policyholder’s death, a money back policy combines insurance coverage with periodic returns. This makes it an attractive option if you are seeking protection and regular income, whether you prefer the flexibility of recurring premiums or the convenience of a one time investment plan .

How Does a Money Back Policy Work?

You already know by now that a money back policy works by combining life insurance with periodic payouts. Now, let us understand it a bit more in detail.

When you purchase this policy, you pay premiums either as a one-time investment or in recurring intervals. You can think of the regular premium payments in a money back policy as a recurring deposit that also provides life insurance coverage. Over the policy term, the insurer pays you a portion of the sum assured at regular intervals, called survival benefits. These payouts provide you with liquidity during the policy period.

At the end of the term, the remaining sum assured is paid to you as a maturity benefit, along with any bonuses or incentives the insurer has added. In the unfortunate event of the insured’s demise during the policy period, the nominee receives the entire sum assured, regardless of the payouts already made. This way, a money back policy offers both financial security and regular income.

Why Do You Need to Buy Money Back Policy?

A money back 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 back policy provides regular payouts during the policy term. These payouts can help you cover recurring expenses or fund short-term financial goals.
  • This policy not only protects your family’s future with life insurance coverage but also ensures guaranteed returns on your investment. It is like 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 money back plan can provide financial support for their education or other milestones.
  • If you prefer low risk investment plans, a money back scheme plan is ideal for you. It offers stable returns without the uncertainties of market-linked investments, giving you peace of mind.

What are the Key Features of Money Back Policy?

Understanding the key features of money back 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 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 financial needs 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, which is the remaining sum assured, along with any accumulated bonuses. This lump sum amount 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 to you 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.

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 of the significant advantages of a money back 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 are 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 it a suitable option for conservative investors or those looking to balance risk and reward.

Secondary Source of Income

The periodic survival benefits provided by a money back policy serve as 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 back 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 makes sure 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.

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

Are you primarily focused on long term needs like retirement, or do you have shorter term objectives you would like to achieve? While money back policies are often used for long term planning, they can also play a role in your short term investment plans . For example, if you are aiming to buy a car or make a down payment on a house in the next few years, the regular payouts from a money back policy can contribute to those goals. So, make sure to keep your short and long term financial goals in mind while selecting your plan and choose accordingly.

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.

Example of Money Back Policy

Let us further understand how a money back policy operates with an example that is easy to follow:

Imagine you buy a money back policy with a sum assured of ₹5,00,000 for a policy term of 25 years. The plan promises to pay out survival benefits every 5 years. Here is how it would work:

  • Survival Benefits: Every 5 years, you receive 20% of the sum assured. That is ₹1,00,000 each time. So, by the 20th year, you would have received ₹4,00,000 in total as periodic payouts.
  • Maturity Benefit: At the end of the 25 years, you get the remaining ₹1,00,000 along with any bonus declared by the insurer during the policy term.
  • In Case of Death: If something unfortunate happens and the policyholder passes away during the policy term, the nominee will receive the entire sum assured of ₹5,00,000, regardless of how many survival benefits have already been paid.

Comparison Between 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:

Feature Fixed Deposit (FD) Money Back Policy
Purpose Savings and earning interest over a specified period. Insurance and investment, providing periodic returns and life cover.
Risk Level Low risk, as it offers guaranteed returns. Moderate risk, as returns are guaranteed but dependent on the insurer’s solvency.
Returns Predetermined and fixed interest rate. Periodic payouts and a maturity benefit; bonuses may be included.
Coverage No insurance coverage. Provides life insurance coverage along with investment returns.
Tax Benefits Interest earned is taxable; a tax deduction is available under Section 80C for certain deposits (up to ₹1.5 lakh per year). Premiums paid are eligible for tax deductions under Section 80C; maturity benefits may be tax-free under Section 10(10D).

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.

Documents Required to Buy Money Back Policy

Having the right documents is essential when purchasing a money back policy. These documents help verify your identity, address, income, and age, ensuring a smooth and hassle-free application process. Here is a detailed list of the necessary documents:

Proof of Income

Income proof is crucial for insurers to assess your financial stability and ability to pay the policy premiums. The following documents are typically required:

  • Salary Slips
  • Income Tax Returns (ITR)
  • Bank Statements
  • Form 16
  • Business Income Documents

Proof of Address

Proof of address is required to confirm your residential location. Acceptable documents include:

  • Driving License
  • Aadhaar Card
  • Voter ID Card
  • Passport
  • Utility Bills
  • Rent Agreement
  • Bank Statement/Passbook

Proof of Identity

Identity proof is required to verify your identity. Commonly accepted documents are:

  • PAN Card
  • Aadhaar Card
  • Voter ID Card
  • Passport
  • Driving License

Proof of Age

Proof of age is necessary to confirm your eligibility based on age criteria. The following documents are acceptable:

  • Aadhaar Card
  • Voter ID Card
  • Passport
  • Driving License
  • Birth Certificate
  • School/College Leaving Certificate

Medical Reports

The insurer might require medical reports to assess your health status. These could include:

  • Medical Examination Reports
  • Existing Medical Records
  • Blood Tests
  • ECG/X-Ray Reports

Photographs

Provide recent passport-sized photographs for documentation purposes.

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

1

Can I take a loan against my money back policy?

Yes, you can take a loan against your money back policy after it has acquired a surrender value, usually after paying premiums for a few years.

2

What happens if I miss a premium payment?

If you miss a premium payment, your policy may lapse or enter a grace period. The policy benefits might be reduced or terminated if not paid within the grace period.

3

Are money back policies suitable for long term financial goals?

Yes, money back policies can be suitable for long term financial goals as they provide periodic payouts, a lump sum on maturity, and life coverage.

4

Can I surrender my money back policy before maturity?

Yes, you can surrender your money back policy before maturity, which may incur penalties and result in a lower payout than the total premiums paid.

5

Is the bonus received from a money back policy taxable?

No, the bonus from a money back policy is generally not taxable if the premiums paid do not exceed 10% of the sum assured and other specific conditions under Section 10(10D) are met.

6

How is the survival benefit calculated in a money back policy?

The survival benefit is calculated as a percentage of the sum assured and is paid at regular intervals during the policy term, as specified in the policy details.

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

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.