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LIFE INSURANCE

Endowment or Money Back - What Should You Buy?

Inderpal Ahluwalia 08 December 2017
4.0 (1 votes)

Are you confused about which insurance plan to buy? This article will clear your fuzzy thoughts while choosing between an endowment plan and a money back plan.

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Picking the right insurance policy is always a head-breaking task because of a plethora of products offered in the market offered by insurance companies. To add to this misselling of products by intermediaries create further confusions about certain products.

Choosing the Right Insurance Plan

People in India usually seek to invest with orthodox insurance and savings plans that would help them with savings to achieve short term and long term financial goals.

Traditional plans like endowment and money back are usually people’s first choice but due to lot of grey area on their returns and policy benefits, people often get confused as to which would be the most suitable investment option.

This article will help you give a clear picture regarding the endowment and money back plans.

Money back and endowment plans have a mixture of investment and insurance component in them.

The fundamental difference between the two is the time period of receipt of the sum assured.

Endowment plansMoney back plans
Benefits receipt termAgreed sum assured and applicable bonuses if any are paid at the maturity of the policy if the policy holder survives the term.Policy holder gets a percentage of sum assured at regular intervals and the balance sum assured and applicable bonuses if any are paid the end of the policy term on maturity.
Death benefitBoth plans pay the sum assured and applicable bonuses if any, if the policy holder dies during the term of the policy.
Who should buyIf you are looking for a plan primarily for savings then by investing in an endowment plan you can accumulate savings to reach your long term financial goals like children's marriage fund or retirement fund.If you require regular flow of income to meet short term financial goals, a money back plan is ideal for you.

Let’s see an example of endowment plan and money back plan investment structure and returns.

Endowment Plan

TATA AIA Life Insurance Insta Wealth Endowment plan

Age35 years
Policy term15 years-20 years
Basic Sum AssuredINR 5,00,000
Annual premiumINR 36,205
Benefits @ 4%
Compound Reversionary Bonus Terminal BonusMaturity Amount
INR 1,34,717INR 33,676INR 693,396
Benefits @ 8%
Compound Reversionary Bonus Terminal BonusMaturity Amount
INR 3,60,214INR 90,054INR 975,268

Money Back Plan

TATA AIA Life Insurance Money Back Plus

Age35 years
Policy term20 years
Premium paying term10 years
Basic Sum AssuredINR 5,00,000
Annual premiumINR 59,110
Total Survival benefitINR 3,00,000
Benefits @ 4%
Compound Reversionary Bonus Terminal BonusMaturity Amount
INR 1,28,475INR 83,509INR 5,11,984
Benefits @ 8%
Compound Reversionary Bonus Terminal BonusMaturity Amount
INR 3,35,444INR 2,18,038INR 8,53,482

Money back plan will give out regular income after every 5 years as shown in the table below. The final maturity benefit or survival benefit come to 120% of the sum assured.

End of policy yearSurvival benefit as a % of basic sum assured
520%
1020%
1520%
2060% + Vested Bonus
Total Benefit 120%

Conclusion:

As we can see from the above example, investing in a money back policy gives you returns at regular intervals throughout the policy term, so you can fulfil your short-term goals. On the other hand, an endowment plan helps you to save a wholesome big amount that you can enjoy at the maturity of the policy.

Before picking an endowment plan or money back plan, it is advisable to first check your investment objectives and then choose a plan accordingly. Compare the policy benefits and riders before finalising on a plan. Lastly, both plans are good it just depends on what is your investment goal which will make your investment a fruitful one.

Recommended Read: Term Insurance vs Endowment Plan: Which is the Best?

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