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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
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.
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 .
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.
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:
Understanding the key features of money back insurance policy can help you make informed decisions about your financial planning and protection needs.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
Understanding the benefits of money back plans can help you assess whether a money back policy aligns with your financial goals and needs.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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:
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). |
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.
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:
Income proof is crucial for insurers to assess your financial stability and ability to pay the policy premiums. The following documents are typically required:
Proof of address is required to confirm your residential location. Acceptable documents include:
Identity proof is required to verify your identity. Commonly accepted documents are:
Proof of age is necessary to confirm your eligibility based on age criteria. The following documents are acceptable:
The insurer might require medical reports to assess your health status. These could include:
Provide recent passport-sized photographs for documentation purposes.
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:
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.
1
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
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
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
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
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
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.
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
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.