Money Back Policy

What is a Money Back Policy?

A money back policy is a unique type of life insurance that offers both protection and liquidity. Unlike traditional plans that pay a lump sum only at maturity or upon death, a money back policy provides regular payouts, known as survival benefits, throughout the policy term. These payouts are designed to support important milestones or recurring financial needs.

If the policyholder passes away during the term, the nominee will still receive the entire sum assured, regardless of any earlier payouts. This blend of steady income and life cover makes it a practical choice for individuals looking to balance long-term savings with short-term financial needs.

How Does a Money Back Policy Work?

Let’s understand how a money back policy functions with an example.

Imagine a 25-year-old individual who purchases a 25-year money back policy with a sum assured of ₹15 lakhs. The plan is designed to pay 15% of the sum assured every five years as survival benefits.

Here is how the payouts would work:

• At the end of the 5th year: ₹2.25 lakhs
• At the end of the 10th year: ₹2.25 lakhs
• At the end of the 15th year: ₹2.25 lakhs
• At the end of the 20th year: ₹2.25 lakhs

Upon policy maturity at the end of the 25th year, the remaining ₹6 lakhs, along with any applicable bonuses, would be paid as the maturity benefit. In the event that the policyholder passes away during the 25-year term, the nominee will receive the full sum assured of ₹15 lakhs, regardless of any survival benefits already disbursed, ensuring that the policyholder’s family’s financial goals remain protected.

This structure offers the advantage of liquidity, similar to a recurring deposit, but with the added benefits of life cover and bonuses.

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.

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.

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.

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.

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.

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 investment plans 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.

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.

Types of Money Back Policies

Money back policies come in various formats to suit different financial goals and life stages. Below are five common types, each designed with specific benefits and features:

Traditional Money Back Policy

A traditional money back policy offers fixed, guaranteed payouts at regular intervals during the policy term. These periodic returns provide a stable income while the plan continues to offer life insurance coverage. At maturity, the remaining sum assured and bonuses are paid out, making it a dependable choice for risk-averse individuals.

Unit-Linked Money Back Policy

This type of policy blends life insurance with market-linked investments. A portion of your premium is invested in equity or debt funds, depending on your risk appetite. While you continue to receive periodic payouts, the maturity benefit may vary depending on fund performance. It is ideal for those who want potential wealth growth alongside insurance.

Children’s Money Back Policy

Tailored for parents planning their child’s future, this policy offers scheduled payouts aligned with important educational or personal milestones. It ensures that financial resources are available during critical years, such as school transitions or college admissions, even if the parent is not around.

Retirement Money Back Policy

Designed to support your post-retirement life, this policy offers regular payouts after you retire. It helps supplement pension income and maintain financial independence during retirement, while still offering life cover throughout the policy term.

Limited Premium Payment Money Back Policy

This option allows you to pay premiums for a shorter, defined duration (such as 5 or 10 years) while enjoying benefits for a longer policy term. It reduces the financial burden of long-term premium payments and is a practical option for those seeking coverage without long-term financial commitments.

Each type of money back policy serves a unique purpose. Understanding their differences can help you choose the one that best fits your life stage and financial goals.

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.

Riders and Add-Ons for Enhanced Coverage

To maximize the benefits of your money back policy, you can opt for additional riders that offer extra protection based on your needs. These optional add-ons provide financial security in specific circumstances and help tailor the policy to better fit your lifestyle.

• Accidental Death Benefit Rider: Offers an extra payout to your beneficiaries if your death results from an accident, providing added financial support during difficult times.
• Critical Illness Rider: Pays a lump sum if you are diagnosed with a covered critical illness, such as cancer or a heart condition. This amount can help manage treatment costs and ease financial stress.
• Waiver of Premium Rider: If you are diagnosed with a serious illness or suffer a disability, this rider ensures that future premiums are waived while your policy continues to provide coverage.
• Disability Benefit Rider: Provides regular payouts or a lump sum in the event of permanent disability resulting from an accident, helping to cover income loss or medical expenses.
• Income Benefit Rider: Guarantees a regular monthly income to your nominee in the event of your untimely demise, ensuring that your family’s financial needs continue to be met.

These riders enhance the core benefits of your money back policy, providing a safety net and greater peace of mind.

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:

FAQs on Money Back Policy