What Is The Money-Back Policy And How Does It Work?

A money back plan pays out the sum assured as ‘survival benefits’ evenly distributed throughout the term of the policy as long as the policyholder is surviving. The survival benefit becomes payable after a few years of the commencement of the money back policy and continues till the maturity if the insured is alive. Upon the death of the policyholder before the maturation of the plan, the nominee(s) receive the maturity amount, the whole sum assured, along with any bonus if accrued.  

To understand the working of this plan, let’s see an example

Your father purchases a money back policy in your name when you are 20 years old. The initial amount of survival benefit will be paid in the 5th year, with which you can clear your student loan or fulfil educational expenses. The second payment will be made in the 10th year, when you are 30 years old, to help you with your wedding expenditure or home loan. The third payment, when you are 35 years old, can help you prepare for your child’s educational expenses or any mid-life venture. The final payment shall be in the 20th year when you are 40 years old. The remainder of the sum assured will be paid to you with a reversionary bonus. You can plan for some expeditions and meet your child’s educational expenditure with this sum. 

Features of Money Back Plans

1. Income during the term of the policy- The survival benefit paid periodically facilitates to pay off debts, plan your education, trips, purchase a vehicle and fulfil several other life goals. This coverage is unlike any additional benefit provided by insurance policies, and further strengthens your financial security.
2. Investment and Insurance components- With the enhanced liquidity and maturity benefits, this plan clubs the benefits of insurance as well as an investment plan.
3. Death Benefit- Even though the survival benefit is paid in installments throughout the term period, the death benefit is paid in whole to the nominee(s) in case of the demise of the policyholder before the maturation of the plan.
4. Rider Benefits- Like any other standard insurance plan, money back plan, too, provides add-on benefits for critical illnesses and death by accident.
5. Tax Benefits- Under the Income Tax Act, money back plan is exempt from taxation as any other insurance plan.

Conclusion

With a low-risk feature, money back plans are a perfect choice for risk-averse people seeking for investment and insurance coverage with income and maturity benefits. Remember to check all the features and go through all the terms and conditions carefully before purchasing a Money back plan.

Do read - How Do You Select A Reliable Money-Back Policy?