A money back policy is a traditional, savings-oriented life insurance plan which also allows liquidity. Unlike other life insurance plans where the benefit is paid on policy termination due to death or maturity, money back plans pay regular pay-outs during the term of the policy. Thus, these plans provide periodic payments and differ from other life insurance plans.
How a money back plan works?
A money back policy is offered for a stipulated tenure. During the tenure, regular pay-outs are made which are calculated as a percentage of the sum assured. These pay-outs are done only if the insured is alive at that period. On maturity, the remaining sum assured is paid. If, however, the insured dies during the term, the full sum assured is paid irrespective of the money back benefits already paid.
Let’s understand with the help of an example.
A money-back policy has the following details
- Sum assured – Rs.5 lakhs
- Term – 20 years
- Money back benefits – 20% of the sum assured after every 5 completed policy years
In this policy, Rs.1 lakh would be paid as money back benefits in the 5th, 10th and 15th policy year. In the 20th year, when the policy matures, Rs.2 lakhs would be paid and the policy would be terminated. If the insured dies in the 16th policy year, Rs.5 lakhs would be paid as the death benefit.
Features and benefits of the plan
A money back plan has some salient features and provides various benefits too. Here is a list of the plan’s features and benefits:
- Survival benefits
The periodic benefits that are paid under money back plans are called survival benefits. These benefits are paid only if the insured survives till the pay-out period. - Nature of pay-out
Survival benefits, under most money back plans are paid in one lump sum. However, in some plans, there might be a provision for monthly incomes too. - Bonus additions
Money back plans are usually offered as participating plans which offer bonuses. A simple or compound reversionary bonus is declared and paid under money back plans. The accumulated bonus is paid either on maturity or death thereby enhancing the plan benefits. - Riders
Additional coverage features, called riders, are also available with money-back plans. These riders come at an additional premium and increase the scope of coverage. - Tax benefits
Premiums paid for money-back plans, like other life insurance plans, qualify for tax deduction under Section 80C. Even the money back benefits received and the maturity or death benefit is a tax-free income in the hands of the policyholder. - Premiums
Premiums for the plan can be paid regularly, for a limited period or at once. Different money back plans have different premium paying options.
Who should buy a money back plan?
A money back policy is suitable for individuals who are looking for regular incomes at specified intervals. People who want to get assured returns within a short period of time can buy these plans. Individuals can get tax-saving benefits as well as assured returns by investing in money back insurance plans.
Why do you need to buy a money back policy
A money-back policy provides lump-sum benefits during the tenure of the policy. This feature ensures that you will have a regular flow of income no matter what your tenure period is. The money that is paid back on a regular interval is a percentage of the total sum assured. The percentage may differ from company to company. A traditional life insurance policy may be one of the best investment options. However, it may not be able to fulfill your sudden financial needs as the sum assured is released only after the tenure ends. This is where the money-back policy proves to be quite beneficial. Now let’s understand why you need it:
- A money-back provides both survival and death benefit along with bonuses.
- It provides a regular flow of income during the tenure period.
- The plan also offers life insurance cover
- This plan is one of the best options for individuals who are looking for a risk-free policy. A money-back policy involves low risk.
- A money-back policy proves to be the most helpful when it comes to tackling a sudden financial problem.
- In case the insured individual passes away during the tenure period, the entire assured sum goes to the nominee.
- You may get additional tax benefits as well.
A money-back policy also involves rider benefits.
Money back insurance plans vs other life insurance plans
Though money back plans are a type of life insurance plan, their feature sets them apart from other life insurance policies. Here is how money back plans differ from other life insurance plans:
| Money back plans | Other life insurance plans |
| Survival benefits are promised during the tenure of the plan | No survival benefits are paid during the term of the plan |
| Full sum assured is paid as death benefit irrespective of the payment of the money back benefits | If a benefit is paid during the term of the plan, the death benefit is reduced with the amount of benefit already paid |
| Bonus is added in almost all plans | Bonus might or might not be added |
How to choose the best money back plan
There are a lot of money back plans available in the market. To choose the best plan, each plan should be compared against the following parameters.
- The sum assured allowed
Usually, there is no upper limit on the sum assured available under money back plans. However, you should check the maximum sum assured available to ensure that the coverage you are looking for is available under the plan. - The coverage features
The coverage features of the plan should be checked to find out if there are any additional inbuilt covers that enhance the scope of the plan’s coverage. - The riders available
The list of available riders should also be checked when comparing money back insurance plans. The best plan should allow all popular riders to be included in the cover. - The premium rate
is another important factor that should be taken into consideration when comparing money back plans. However, the premium rate should be compared together with the coverage offered by the plan.
Eligibility criteria for buying money back policy
There are some simple and basic eligibility criteria that you need to fulfill in order to purchase a money-back policy. Let’s have a look at these criteria:
- The maximum and minimum age limit is set by each company
- The premium payment mode and the terms must be followed by the individuals seeking a money-back policy.
- Here is a list of a few documents that you may require:
- Proof of Income- Bank statement, salary slip, income tax returns, etc.
- Address Proof- Passport, Aadhaar card, driving license, voter’s ID card, etc.
- Proof of Age- Driving license, Aadhar card, passport, voter’s ID card, etc.
- Identity Proof- Aadhaar Card, PAN Card, Voter’s ID Card, etc.
What is Money back insurance policy?
Money back policy is a type of traditional insurance policy that provides dual insurance and investment benefits. It offers both survival benefits/maturity benefits and death benefits. If the policyholder survives the policy tenure, then the policyholder gets maturity benefits, and in case the policyholder dies during the policy tenure, the nominee or beneficiary gets death benefits.
Does a money back policy provide survival benefits?
Yes, Money back policy provides a sum assured to the policyholder at regular intervals in the form of survival benefits.
Is the amount received through a money back policy taxable?
The amount received through money back policy is tax-free under section 10(10D) of the income tax act, 1961
Is there a penalty if I do not pay my premium for money back policy on time?
If you cannot pay the premium on time, the policy enters the grace period. The policy automatically lapses if you are not even paying your premium in the grace period. If you want to revive the policy within the revival tenure, you must pay the pending premium with interest and revival charges, if any.
What is a 100% money-back guarantee?
Keep in mind that offering a “100% money back guarantee” indicates that you will refund the total price of the product or service the customer is returning.
Can i Get loan on a money back policy?
You can borrow a loan against the surrender value of your policy, and not the sum assured of your policy.
Does the money back policy come under 80C?
The advantages of these programmes are defined under Section 80C of the Income Tax Act of 1961. In addition, the maturity benefit, survivor benefit, and bonuses of monthly investment plans are all tax-free. Under the 80c tax deduction, up to Rs. 1,50,000 can be claimed
Who should buy a money back plan?
A money back policy is suitable for individuals who are looking for regular incomes at specified intervals. People who want to get assured returns within a short period of time can buy these plans. Individuals can get tax-saving benefits as well as assured returns by investing in money back insurance plans.
What is not coverd in money back policy?
When the policyholder commits suicide within 12 months from the policy’s commencement date, the nominee is entitled to receive 80% of the premiums paid when the policy is in force. When occurred within 12 months from the policy’s revival date, the nominee is entitled to receive an amount higher of surrender value (on the date of death) or 80% of the premiums paid.
What is the maturity amount of money back policy?
The maturity amount of a money back policy is 40% of the basic sum assured along with reversionary bonuses as well as the additional bonus amount.
How does a money back plan works?
A money back policy is offered for a stipulated tenure. During the term, regular pay-outs are calculated as a percentage of the sum assured. These pay-outs are done if the insured is alive at that period. On maturity, the remaining sum assured is paid. If, however, the insured dies during the term, the total sum assured is paid irrespective of the money back benefits already paid.
What are the eligibility criteria for buying a money back plan?
The eligibility criteria are as follows:
The policyholder should be above the minimum entry age and below the maximum entry age. It must be noted that the minimum and maximum entry age varies from policy to policy.
The policyholder should be able to pay the sum assured amount per the policy guidelines.
What are the benefits associated with a money back policy?
The key benefits associated with a money back policy include survival benefits, death benefits and maturity benefits. Survival benefit is the regular income paid at fixed intervals during the policy’s tenure if the policyholder survives till the end of the policy and the policy is active. The death benefit is the benefit (maturity benefit along with accrued bonuses) given to the policy holder’s nominee in case of the latter’s sudden demise. Maturity benefit is the benefit that is paid out once the policy is matures.
Is It Risky to Invest in Money Back Policy?
A money-back policy is much less risky than investing in a mutual fund. It can be a favourable situation for the investor because it is a tax-saving investment with assured returns over the period and provides comprehensive life insurance coverage.
How Frequently Am I Required to Pay Money Back Policy Premium?
Premiums for money-back plans are usually charged annually or monthly. Still, you may also be given the option of paying half-annual or quarterly.
What are riders applicable for money back investment plans?
You can get the following riders to enhance your money back investment plan:
Critical Illness Rider
Premium Waiver Rider
Accidental Death/Disability Cover
Accelerated Sum Assured
Hospital Cash Benefit Rider
Term Care Rider
What documents are needed to buy a money back policy?
The following documents are needed to buy a money-back policy:
Identity proof
Age proof
Address proof
PAN Card
2 Passport Size photographs
Can i withdraw money from the money back policy?
Withdwaing money from money back policy not allowed. Money back policy provides a sum assured to the policyholder at regular intervals in the form of survival benefits.