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ULIP INSURANCE

Endowment or Money Back - What Should You Buy?

Inderpal Ahluwalia 08 December 2017

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.

Difference between endowment plan and money back plan

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 plans Money back plans
Benefits receipt term Agreed 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 benefit Both plans pay the sum assured and applicable bonuses if any, if the policy holder dies during the term of the policy.
Who should buy If 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

Age 35 years
Policy term 15 years-20 years
Basic Sum Assured INR 5,00,000
Annual premium INR 36,205
Benefits @ 4%
Compound Reversionary Bonus Terminal Bonus Maturity Amount
INR 1,34,717 INR 33,676 INR 693,396
Benefits @ 8%
Compound Reversionary Bonus Terminal Bonus Maturity Amount
INR 3,60,214 INR 90,054 INR 975,268

Money Back Plan

TATA AIA Life Insurance Money Back Plus

Age 35 years
Policy term 20 years
Premium paying term 10 years
Basic Sum Assured INR 5,00,000
Annual premium INR 59,110
Total Survival benefit INR 3,00,000
Benefits @ 4%
Compound Reversionary Bonus Terminal Bonus Maturity Amount
INR 1,28,475 INR 83,509 INR 5,11,984
Benefits @ 8%
Compound Reversionary Bonus Terminal Bonus Maturity Amount
INR 3,35,444 INR 2,18,038 INR 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 year Survival benefit as a % of basic sum assured
5 20%
10 20%
15 20%
20 60% + 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 plans, 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.