What Is Money Back Plan Is And How It Works
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In simple words, a money back plan is suitable for people who may need money at regular intervals to meet their short-term or long-term financial goals. Life insurance companies offer such money-back plans.
What is a Money Back Policy?
A money-back policy is a life insurance plan that unlike other such policies allows liquidity. In a standard life insurance policy, the benefit is received when the policyholder dies or the policy matures. A money-back policy, on the other hand, offers pay-outs at regular intervals during the policy tenure. This policy is considered to be a suitable option for investors who are in their late 30s and are looking for notable pay-outs after a period of 5-10 years to fund their children’s education or marriage or to fund some investment in real estate.
What makes this policy attractive is that in case the policyholder passes away during the tenure of the policy, the entire amount of sum assured would be given to the nominee. There would be no deduction of the survival benefits that have already been received.
How Does a Money Back Plan Work?
Let us understand how the money-back plans work, with the help of an example. Someone bought a money-back policy with INR 20 lakhs as the sum insured for a policy tenure of 20 years. He would start receiving 20% of the sum assured as pay-outs after 5 years and receive the same every 5 years, and the remaining will be received when the policy ends. Thus, INR 4 lakh would be given in the 5th then 10th and then 15th policy year. When the policy matures in the 20th year he will receive INR 8 lakhs. In case he passes away before the maturity date, the sum assured would be paid to the nominee as a death benefit.
Benefits of Investing in Money Back Policy
Given below are the benefits of a money-back policy:
Low-Risk Investment
There are plenty of investment options available in the market today, but most entail a high degree of risk and uncertainty, thanks to the volatility of the capital market. Therefore, money-back plans are very suitable if you have a low-risk appetite.
Guaranteed Returns
As these plans are not much affected by the highs and lows of the market, they would always give you positive returns. For a conservative investor, these are an ideal go-to policy.
Regular Source of Income
Every few years you would receive a survival benefit that comes in very handy in paying-off loans, making deposits for a house/apartment or paying the children’s tuition fee.
Life Cover.
The policyholder is covered for life, and in case of his death, the nominee/beneficiary will receive the complete sum assured as the death benefit, even if survival benefits have already been received.
Assured Returns
Reversionary and additional bonuses are given regularly to the policyholder.
Tax Benefits
The premiums that you pay towards the insurance plans will be eligible for a tax rebate under Section 80C. The maturity/death benefit is also tax-free for the policyholder under section 10(10)D provided the sum assured is at least 10 times the annualised premium.
Flexibility of Payment
You can pay your premium in a lump sum or at regular intervals-monthly, quarterly, half-yearly, or annually.
Option of Riders
Opting for one or more Riders helps you enhance the coverage offered by your standard money-back policy.
How to Choose the Best Money Back Policy Online?
When it comes to buying a money-back policy, there are many options available in the market. Choosing the best money-back plan may be easy if you keep in mind the following parameters:
Maximum Sum Assured
Most companies do not cap the upper limit for sum assured, still it is recommended that you check whether the cover you are looking for is available or not.
Cover Provided
Checkout for any available inbuilt covers that may increase the scope of the plan’s coverage.
Availability of Riders
Insurance companies do provide riders but you need to check the list for the rider that you are looking for.
Premium
An important factor, the rate of premium can play a very crucial role in finalising the plan you are looking for.
With a money-back policy, you not only receive regular payouts but also get yourself covered with life insurance. If you are looking for a long-term investment that offers survival benefits, it may be ideal to invest in such a plan. However, there are still things you must consider before making a decision. Keep the following factors in mind if planning to buy one:
- You must ensure that the periodic pay-outs will be sound enough to fulfill your anticipated financial requirements
- The benefits and pay-outs received from the money-back policy are guaranteed, however, as compared to market-linked insurance-cum-investment plans, money-back policies offer a lower rate of interest
- You would receive the payout only at the predetermined intervals
- There is also no option to increase or decrease the sum assured and thus the premiums will remain the same and cannot be changed
Conclusion
Almost all the companies that offer money-back policies also offer riders. By paying a little extra you can increase the coverage of your plan. Life is unpredictable and these riders can come in very handy when you are in a medical/ financial crisis.
