Money back insurance policy is a special form of life insurance policy where the insured receives a part of the sum assured as a regular installment rather than receiving a lump sum at the end of the policy period. In fact, money back insurance policy acts as an endowment scheme with liquidity.
Money back insurance policy is a special form of life insurance policy where the insured receives a part of the sum assured as a regular installment rather than receiving a lump sum at the end of the policy period. In fact, money back insurance policy acts as an endowment scheme with liquidity.
As the name suggests, this policy provides money back at regular intervals (usually in installments after a few years). The installment amount, which is also called ‘Survival Benefits’ is a certain percentage of the sum assured.
The remaining sum assured is paid back on maturity with consigned bonuses. In case of the death of the insured during the policy tenure, the full sum assured is paid regardless of the Survival Benefits already paid.
Let’s take an imaginative scenario to understand the work process of money back policy. Mr. Sharma purchases a 20-year money back policy with a sum assured of Rs. 20 lakhs. The plan offers 20% survival benefits every 5 years from the purchase date.
Now, Mr. Sharma shall receive Rs. 4 lakhs in the 5th, 10th, 15th and 20th year of the policy. In addition, in the 20th year, he shall also get the remaining Rs. 4 lakhs coupled with vested bonuses and the plan will terminate.
If Mr. Sharma passes away in the 15th year of the policy, then the nominee shall receive the entire Rs. 20 lakhs although Mr. Sharma already availed Rs. 12 lakhs as Survival Benefits.
Money back plan is kind of a saving plan as it provides a guaranteed return on investments along with a regular monthly payout. At the same time, these policies offer insurance coverage. So, this is an excellent choice for those individuals who want security and income in tandem.
In this unpredictable world, things may go awry at any time and you may face financial constraints. When you have a secured income flow at regular intervals along with life insurance coverage it gives you peace of mind and acts like a shield during any financial hardship.
Hence, the money back insurance policy is something that may build a corpus for your growth and prosperity.
Money back plan is like a double-edged sword—it is an investment and insurance option at the same time. Some features of this plan are enumerated below:
This plan is an ideal fit for people who are looking for a safe and secure investment irrespective of the market condition at any given point of time. The money is returned to the policyholder either as a survival benefit or to the nominee in case of early demise of the policyholder.
Money back plan ensures guaranteed returns throughout the lifespan of the policy. The survival benefits accrue regularly and are paid to the policyholder after every few years (specified in the terms & conditions). This covers the cost for unforeseen large expenses that may happen at any time. The person can also use the fund for a family holiday, to pay off loans, to buy an apartment or simply for savings purposes. Therefore, this policy is unparallel to any other common policy currently available in the market.
Money back policy also offers a lump sum amount to the policyholder after the maturity period. This end benefit is guaranteed and always communicated upfront. Hence, the plan covers your life and provides a definite return as well as a sum assured.
The nominee of the policy receives the sum assured even if any unfortunate event happens to the policyholder inside the policy tenure. This includes the applicable bonus as well; reversionary or additional. Hence, the money back policy acts like a life insurance plan that takes care of the financial well-being of the family members even if the policyholder is not around.
By nature, the policy increases the benefits for the insured through an additional bonus. Every year the insurance provider declares the bonus as a percentage of the sum assured. This bonus is added to the overall amount on maturity of the policy. However, the bonus amount is subject to regular & timely payment of the premium by the policyholder.
‘Add on’ as the name suggests, is a means to increase the coverage of your policy. Insurance providers allow the policyholder to choose several add-on riders like critical illness, personal accident or a term rider in exchange for a higher premium. Experts say that an ideal money back plan comprises assured returns, more add-on riders, lower risk and additional tax benefits.
Following are the advantages of money back policy.
This is one of the best parts of a money back plan. Sometimes, the policy term can be long like 15 to 20 years. In that case, insurance providers pay the accrued sum in every few years. Usually, the accrual payment interval is specified.
Being an insurance coverage in nature, a money back policy offers good value for money. The policyholder receives money in 3 ways: the survival benefits, the sum assured on maturity, and the bonus. The survival benefits are usually paid in regular intervals and bring higher value for the users compared to if the lump sum amount would be paid only after the maturity.
The policyholder always receives the full sum assured on maturity irrespective of the amount he/she already availed as survival benefits. On top of that, an additional bonus is paid along with the sum assured that increases the total money.
Quite a few other investment plans offer returns at the end of the investment period or over the lifetime of the policy. However, only the money back life insurance policy provides several advantages like survival benefits, maturity benefits with bonus and insurance cover.
There are two types of bonuses provided with the money back plan: Simple Reversionary bonus that is declared at the end of each year and added to the overall sum that the policyholder receives at the maturity period. Compound Reversionary is when the declared bonus for the current year is added to the sum assured instantly and the next year’s bonus calculation is done on the already increased amount.
A money back policy should be a part of an individual’s investment portfolio to counter the volatility of the market-linked investment like stock or commodity market. Due to the guaranteed nature of the return, it provides an effective cushioning against loss of income from other investments.
This policy ensures that the insured gets his or her sum assured back no matter what the market condition is. Hence, it is a good way to make your investment portfolio secure. Moreover, the money back plan supports if suddenly you need a certain amount of money in the future—thanks to the survival benefits payout.
The policy premium qualifies for tax deductions (up to a specified limit) under section 80C of the Indian Income Tax Act, if the premium is less than 10% of the sum assured. Additionally, if the sum assured is 5x higher than the premium it is exempted from tax at source deduction.
Survival benefits are money paid to the policyholder after every few years. These benefits continue till the very end of the policy tenure. The amount is determined as a certain percentage of the sum assured and spread across the policy period.
If any unfortunate event happens to the policy owner, the nominee(s) receives the sum assured including the bonus accrued. However, the death benefit does not include survival benefits as those are paid only if the insured is alive.
On the maturity of the money back plan, the insured is rewarded with maturity benefits that include the sum assured, the remaining survival benefits as well as all accrued bonuses.
As per section 80C of the Indian Income Tax Act, if the policy premium is less than 10% of the sum assured it qualifies for tax deductions. Moreover, there is no tax deduction at source if the sum assured is 5 times higher than the premium paid.
In the event of any critical illness, the insured gets a cash sum if a critical illness rider is taken with the money back policy. The amount can be used to pay medical bills or for any other reason. Common critical illnesses that are covered include:
This rider is very helpful if any unexpected costs arise from an accident that may lead to disability (partial or permanent) or death. The amount paid is determined by the severity of the injuries. Insurance providers pay part of the sum assured for any disability or the full sum assured in case of an unexpected happening.
This rider is a bliss for people who are unable to pay the premium for any inconvenience. Even if the premium is not paid, the insured does not lose insurance coverage due to this rider.
As the name suggests, this rider helps the insured to get the sum assured without paying the premium or waiting for the whole term of the money back plan to get the insurance amount.
This rider is more or less similar to a term life insurance policy. The policyholder can take this rider to make sure that the nominees get the term insurance payment even if he or she is not around.
If the insured is admitted to the hospital for a minimum of 48 days, this rider helps to get daily cash to meet the hospital expenses. Cash benefit rider also covers the cost of surgeries and ICU stay.
A money back plan is an endowment policy with a guaranteed return option throughout the entire lifetime of the plan. An endowment policy offers a higher maturity benefit compared to a money back policy. However, money back policy is unique in several ways. It offers survival benefits, maturity benefits at the end of the policy, two types of bonuses and insurance cover.
So, considering the inflation, CPI/WPI, return value and guaranteed nature, money back policy is a good option to choose from.
Many people mix up money back plan with a pure investment option. Money back is a life insurance policy with a guaranteed return starting after a few years of the purchase date, sum assured at maturity along with the applicable bonus.
It is not a full-fledged investment option so unlike other investment options i.e., stock market/bond market it doesn’t offer a risky yet higher return. Rather it provides you with a steady and guaranteed income flow irrespective of the market conditions.
Traditional market investments like stocks, bonds or mutual funds are risky due to the volatility of the market. You can gain higher returns at times or lose the entire investment amount at times. Money back policy eliminates the ‘risk’ portion of your investment. While the return may not be as high as other market-linked investment options, it ensures a guaranteed income flow throughout the entire tenure of the policy. So, if you are after a safe & secure return this is one of the best options for you.
No, it is not risky to invest in a money back policy as it offers guaranteed income throughout the lifecycle of the policy.
This is an insurance cum investment plan that is used to safeguard the financial needs like education, wedding, etc. of a child as they turn 25 years old. This plan offers survival benefits as well as risk cover for children.
With a money back plan, you can lessen your tax liability. The sum assured is exempted from tax if the maturity amount is 10 times the annual premium.
First and foremost, the person should be an Indian National with a regular source of income (employee or self-employed). The entry age barrier is 18-60 years for an employee and for self-employed the maximum entry age is 65 years.
A grace period generally upto 30 days (15 days in case your premium payment mode is monthly) is allowed if you can’t pay the premium for any reason. If you fail the 2nd time, the policy will lapse.
The premium paying frequency is flexible. You can choose any from annual, half-yearly, quarterly or monthly options.
The amount received through money back plan is tax-free under section 10(10D) of the Income Tax Act, 1961.
To surrender the policy, you must go to the insurance company’s branch office or directly talk to an agent as there is no option for online surrender.
The best plan is the one that provides a higher sum assured, good survival benefits, and a grace period if any premium payment is missed.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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