Money-back Policy

Money-back policies are unique insurance products that offer a blend of insurance coverage and periodic returns. They cater to individuals looking for financial security and regular cash inflows during the policy term.

What is a Money-back Policy?

A money-back policy is a life insurance plan 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, making it an attractive option for those seeking protection and regular income.

How Does a Money-back Policy Work?

The best money-back policy is designed to provide financial security while offering regular liquidity during the policy term.

Policy Inception

When policyholders purchase a money-back policy, they choose the sum assured, policy term, and premium payment frequency. The insurer calculates the premium based on these factors and the policyholder’s age, health, and other underwriting criteria.

Premium Payments

The policyholder makes regular premium payments as per the chosen frequency (annually, semi-annually, quarterly, or monthly). These payments ensure the policy remains active and the policyholder continues to receive benefits.

Survival Benefit

During the policy term, the policyholder receives survival benefits at predetermined intervals. These payouts are typically a fixed percentage of the sum assured and are made every few years. For example, in a 20-year policy with survival benefits paid every 5 years, the policyholder might receive 20% of the sum assured every 5 years.

Maturity Benefit

If the policyholder survives the entire policy term, they receive the maturity benefit, the remaining sum assured (after deducting the already-paid survival benefits), plus any accumulated bonuses. This lump sum can meet long-term financial goals like retirement planning or funding a child’s education.

Death Benefit

If the policyholder passes away during the policy term, the beneficiaries receive the full sum assured, regardless of the already-paid survival benefits. This ensures that the policyholder’s family is financially protected even if the policyholder is no longer around.

Bonus

Many money-back policies offer bonuses, additional amounts added to the sum assured. These bonuses can be reversionary, added periodically based on the insurer’s performance, or terminal, added at the end of the policy term. Bonuses enhance the overall benefits received by the policyholder or their beneficiaries.

What are the Key Features of Money-back Policy?

Understanding its key features can help individuals make informed decisions about their financial planning and protection needs.

Guaranteed Returns

Money-back policies provide guaranteed returns through periodic payouts and a maturity benefit. Policyholders 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 the policyholder’s death during the policy term, the beneficiaries receive the full sum assured as the death benefit, ensuring financial security for their 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. Policyholders can choose the premium payment frequency (annually, semi-annually, quarterly, or monthly) and customize the policy to suit their financial goals and needs.

Regular Payouts

A distinctive feature of money-back policies is the regular payouts or survival benefits provided to the policyholder 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 the policyholder has made a claim.

Maturity Benefit

If the policyholder survives the entire policy term, they 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 the policyholder’s 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 the policyholder if they 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

Policyholders can enhance their 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 can help individuals assess whether a money-back policy aligns with their 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 typically 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 monthly income, meet ongoing financial needs, or fund 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 event of the policyholder’s death during the policy term, the beneficiaries receive the sum assured as the death benefit. This ensures that the policyholder’s family members are financially protected and can maintain their lifestyle without the 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.

Eligibility Criteria for Buying a Money-back Plan

The individual should be between 18 and 55 to 65 years old, with the specific age range varying by insurer. Additionally, the individual must have a stable income and be capable of paying the insurance premium on time.

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.

How to Choose the Best Money-back Policy?

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

Financial Goals

The first and foremost aspect to consider is your financial goals. These goals include buying a house, planning an expensive vacation, funding children’s education, etc. You can select the most appropriate plan based on your medium- and long-term financial objectives.

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. Choose a premium that does not become a financial burden, ensuring 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.

Comparison Between Fixed Deposit (FD) and Money-back Policy

Regarding financial planning, choosing between a Fixed Deposit (FD) and a money-back policy involves understanding their respective features, benefits, and suitability for your financial goals.

FAQs on Money-back Policy