In a money-back life insurance policy, the policyholder can get a certain percentage of amounts at regular intervals instead of the lump sum amount at the end of the term. It can be termed as the Endowment plan with a liquidity option. If the policyholder expires during the policy period, the entire sum assured is paid to the nominee irrespective of the benefits paid during the policy period.
These policies are structured to provide two-way benefits to an insured. The first is the survivor benefit, which is paid periodically according to the policy’s terms, usually every four or five years, and the second is the maturity benefit if the insured survives. In death, the total sum assured is paid to the insured.
A money-back policy offers the advantages of an investment scheme and insurance plan. The policyholder gets death and survival benefits. Money-back policies can be a stable source of income as pay-outs are made in periods. A policyholder can use the money-back policy to fulfill different life-stage financial goals.
How does Money Back Insurance Policy work?
Example: Raman purchases a money-back plan of Rs. 20 lakhs for 25 years and pays the premiums regularly. The plan promises survival benefits worth 10% every five years, and upon maturity, the balance of the sum assured is paid along with the bonuses.
Scenario 1: If Raman survives the policy period of 25 Years
He will receive Rs. 2 lakhs after every five years, i.e., Rs 8 Lakhs (Rs 2 Lakhs * 4) over the first 20 years, and at the end of the policy period, i.e., on the 25th year, he will receive the balance amount of Rs 12 lakhs along with the due bonus.
Scenario 2: If Raman doesn’t survive the policy period
Suppose, considering the worst-case scenario, Raman dies in the 14th year of the policy period. In such a case, the entire Rs 20 Lakhs along with the due bonus would be paid to the nominee in the money-back insurance irrespective of the fact that Raman had received Rs. 4 lakhs as Survival Benefits over the initial ten years of the money back insurance plan.
Features and Benefits of a Money Back Policy
A money-back plan has some salient features and provides various benefits also. Here is a list of the plan’s features and benefits:
Survival benefits: The periodic benefits paid under money-back plans are called survival benefits. These benefits are paid only if the insured survives till the pay-out period.
Maturity Payout: When the plan matures, the policyholder receives a maturity benefit after deducting the amount paid earlier as survival benefits. This maturity amount may include a bonus if declared and provided in the plan.
Nature of pay-out: Under most money-back plans, survival benefits are paid in one lump sum. However, in some plans, monthly payouts might also be provided.
Liquidity: In a money-back plan, you get a sum assured at regular intervals during the policy term. As a result, you have the necessary cash and may better organize your finances to achieve various financial goals, such as child education, marriage, etc.
Bonus Additions: Money back plans are usually offered as participating plans which provide a bonus. A simple or compound reversionary bonus is declared and paid under the money-back plans. The accumulated bonus is paid on maturity or death, enhancing the plan benefits.
Riders: Additional coverage features, called riders, are also available with money-back plans. These riders come at an extra premium and increase the scope of coverage.
Premiums: Premiums for the plan can be paid regularly, for a limited period, or at once. Different money-back methods have other premium paying options.
Tax benefits: Premiums paid for money-back plans, like other life insurance plans, qualify for tax deduction under Section 80C. Money back benefits received on maturity or death is a tax-free income for the policyholder.
How to select a Money Back Insurance Policy?
Several factors are involved when choosing a suitable money-back insurance plan. You can also search for money-back policies online to find what you are looking for.
- Financial Goals.
- The number of years to stay invested.
- Payouts variation.
- The appropriate amount is ensured to satisfy your financial needs.
- Check whether the money-back policy gives tax advantages. Some policies may not provide a tax advantage if a survival benefit equals 20% of the sum assured.
Conclusion: A Good Option for Regular Payouts Along with Insurance
The benefit of a Money-Back Policy is that it provides liquidity through regular payouts throughout the policy’s tenure. Maturity benefit is paid at the maturity of the plan. It provides life cover, and the Death Benefit is paid in full to the nominee in case of policyholder’s demise irrespective of the survival benefits already received.
