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Money Back Policy

Most of us want to invest in a traditional life insurance policy for a long tenure to create a guaranteed corpus. However, we face a problem when we need funds before the tenure is over. A financial crisis might strike anytime and we need funds to tackle it. But a traditional life insurance policy comes to no help if the plan tenure is not over. We can avail a loan but it might be limited in amount. What to do? Is there a plan which pays lump sum benefits during the plan tenure?

Yes, there is. A money-back plan solves the problem of liquidity during the plan tenure by paying a percentage of the Sum Assured regularly through the plan tenure. Let's understand the plan in detail.

What is a Money Back Policy?

As the name suggests, a money-back policy is a policy which gives money-back at regular intervals. This money-back is paid during the plan tenure and is a percentage of the Sum Assured. Money-back pay-outs are called Survival Benefits. These benefits are paid during the plan tenure and on maturity, the remaining Sum Assured is paid along with vested bonuses. However, if the insured dies during the plan tenure, the full Sum Assured is paid irrespective of the Survival Benefits already paid. This is what makes the plan unique. Some of the salient features of Money Back Policy are:

  • The Survival Benefits are calculated as a percentage of the sum assured.

  • Survival Benefits are paid at regular intervals during the plan tenure. There is a fixed interval when the benefits would be paid. Every plan has a different payout structure. Similarly, the percentage of Sum Assured paid as Survival Benefits is also not fixed and varies between different plans.

  • If the plan matures, the remaining portion of the Sum Assured (actual Sum Assured less the Survival Benefits already paid) is paid as maturity benefit. However, in case of death, the entire Sum Assured is paid irrespective of the money-back benefits already paid.

  • Money-back plans usually come as participating plans where bonuses are added. The accrued bonus is then paid on maturity or on death.

  • Riders are also available under many money-back plans. Rider benefits are paid as a lump sum only when the contingency covered by the rider occurs during the plan tenure.

How does a money back policy work?

Examples always give a clear understanding of how an insurance plan works. So, here is a simple illustration which shows the workings of a money-back policy:

Example – Mira buys a money back plan for a Sum Assured of Rs.10 lakhs. She chooses a term of 25 years and pays regular premiums throughout the policy tenure.

The Plan promises survival benefits @20% of the Sum Assured after every 5 years of the plan. On maturity, 20% of the Sum Assured is paid along with any accrued bonuses.

Mira, thus, receives Rs.2 lakhs every 5 years, i.e. in the 5th policy year, 10th policy year, 15th policy year and 20th policy year. At the end of the 20th policy year, Mira has already received Rs.8 lakhs. On maturity, Rs. 2 lakhs along with added bonuses would be paid to her and the plan would terminate.

If Mira dies on the 18th year of the policy, Rs.10 lakhs would be paid to the nominee along with the added bonus even though she has already received Rs.6 lakhs as Survival Benefits.

Importance of Money Back Policy

Money Back plan is a type of saving plan. Here, you get survival benefit along with maturity benefit and bonus (if any).

The reason why money back policy is important is that it provides funds on regular intervals after a certain period of time till the end of the policy term.

In this unpredictable world, where things change rapidly, one may face ups and downs without any prior notice.

There’s no problem when everything is going smooth. It’s when things suddenly take turn and you are financially blown. You may want to build a corpus for your growth and prosperity. There can be number of reasons, for you to build funds such as investing in your business in every few years, child’s education, etc. The money back plans are the best saving plans on which you can count on.

Moreover, money back plans come with a life insurance cover.

Why should you buy a money back plan?

You should buy a money back policy because:

  • A money back plan provides you and your family a financial protection, safety net, and act as a financial aid in case of an emergency.

  • You can start saving and learn the art of accumulating wealth

  • You get tax exemption under Section 80C and 10(10D).

You may need financial aid during different phases of life. A money back plan would be helpful in many ways.For instance, for your child’s education, investing in your personal financial needs, a family vacation, your retirement planning, etc. With money back policy, you can invest and meet such short term financial goals hassle-free.

Let’s see in detail how money back plans helps in financial stability and growth:

  • Build Corpus Funds: You automatically fall into the habit of savings. Moreover, you can start planning for your short term goals. Money Back policies provides survival benefits, which means if you survive the specific term, you get the survival benefits. The main advantage of money back policy is you get returns on regular intervals. This specific feature alone can act as a financial aid during various life stages.

  • Save For Your Child’s Future: Since you receive regular cash flow with Money Back policy, you can systematically decide your child’s education and bright future. You can prepare well in advance to meet the financial requirements for your child’s education. As you are very well aware of the rising education costs day by day and year after year money back plan supports those rising costs like a strong pillar.

  • Secure Your Family: Money Back policy is not solely a saving tool. It is a type of a life insurance plan, which means you are covered against the risk of untimely death. Money Back policy provides a life cover to the investor. In case of an untimely death of the insured, his nominee gets the death benefit as mentioned in the plan. This way, you can keep your family financially secured and save them from undergoing the financial hardships even when you aren’t around.

Features of Money Back Policy

  • Provides life cover to the investor up to the end of the policy term
  • Provides cash flow on regular intervals throughout the policy term to meet your short-term financial goals
  • You can avail tax benefits on all the premiums paid towards the money back policy
  • You get payouts in a short span of time on your investment unlike other life insurance plans
  • Few life insurance companies provide “guaranteed returns” with their money back policies
  • Money Back plans provide “Bonus” which enhances your investment
  • You can attach riders along with your money back plan which helps in increasing the coverage.

Benefits of Money Back Policy

  • Regular Returns : One of the unsurpassed features of money back policy is that the returns start to accrue just after few years of investment. Most of the Money back policy provides benefit in a 2 stage process. In the case of long-term policies such as 15 or 20 years, the amount is paid after every fixed interval. In addition, rest of the Sum Assured is paid on the maturity of the policy. The survival benefit is paid only if the insured party continues to live, however, in event of any unfortunate event which leads to the death of the insured either in an accident or otherwise, the sum assured is paid immediately to the nominee. Thus, the plan provides both regular returns as well as a full death cover.

  • Value for Money : As a general misconception, people believe that money back plan does not offer good returns as compared to any other conventional investment plans. However, one should keep in mind that it also offers an insurance cover apart from a regular return. So actually it’s a win-win situation for the investor. There are multiple investment avenues available in the market. However only a money back plan offers the triple advantage of maturity benefits, survival benefits as well as an insurance cover under one umbrella. The icing on the cake is the bonus at maturity, which significantly increases the overall payout. So, a money back plan is a value-for-money investment option.

  • Secure Investments avenue : The money back policy is a safe investment avenue for those investors who are looking for guaranteed returns.

  • Tax Savings : The premium paid towards money back policy is entitled to tax deductions under the section 80C of Indian Income Tax Act, 1961. The investor can avail the benefits up to a specified limit which is Rs.1.5 lakhs. Hence apart from all other benefits, the policyholders can also reduce their tax liability through money back plan. Additionally, the maturity and death benefit along with all the survival benefits are also exempt under section 10 (10D) of the Income Tax Act 1961.

Eligibility Criteria for Buying Money Back Policy

The eligibility criteria to buy a money back plan is:

  • One must meet the entry age criteria as mentioned in the policy wordings before purchase.
  • One can’t extend the policy beyond the maximum age allowed under the money back plan.
  • One must adhere to the plan’s premium payment term and mode.

Documents Required For Buying Money Back Policy

Mentioned below are the documents required for buying a money back plan:

  • Income proof - Salary slips, income tax returns, bank statement, etc.
  • Address proof – Driving License, Aadhaar card, voter’s id, passport, etc.
  • Id proof - PAN card, Aadhaar card, voter’s id, etc.
  • Age proof - Aadhaar card, voter’s id, passport, driving license, etc.

Riders Available With Money Back Policy

A money back plan comes with an assortment of rider that a policyholder can easily add on their regular cover for a nominal additional premium. The riders expand the protection horizon and guard against any unforeseen risks from various possible outcomes. Some of the most common riders available under money back plan are critical illnesses, accidental death & disability rider, hospital cash rider etc.

  • Critical Illness Rider: A critical illness rider safeguards the policyholder against the listed critical illnesses which may occur at any time during the policy term to the insured. The Critical Illness Rider provides a guaranteed Sum Assured in case the life insured is diagnosed with any of the mentioned critical illnesses. Some of the common critical illnesses which are included in the scope of benefit are

    • Coronary health issues such as heart attack & bypass Surgery
    • Cancer
    • Permanent Paralysis or strokes
    • Major organ transplants like liver transplant, heart transplant etc.
    • Renal or kidney failure.
  • Accident Death or Disability Benefit Rider: This rider pays an additional benefit (usually the Sum Assured) if the insured faces an accident which results in either death or disability.

  • Premium Waiver Rider: The rider for premium waiver is helpful in those cases where the policyholder is unable to pay the premium due to any disability. Under this rider, in case of accidental disability, the future premiums are waived off but the plan continues till maturity or death paying the promised benefits as and when they accrue.

  • Term Rider: This is very much like the term life insurance Plan which allows pays an additional sum assured to the nominees in case of death of the policyholder. However, in case the policyholder survives the period of Insurance, the rider benefit is not paid.

  • Hospital Cash Benefit Rider: This rider allows the insured to get daily cash benefit to meet any hospital expenses which they incur during the policy term. In most of the cases, the insured should be hospitalized for a minimum period which is generally 24 hours. Apart from cash benefit, other expenses such as surgeries or intensive care unit stay, etc. are also taken into consideration in this rider.

How to Choose the Best Money Back Policy in India?

Today, there are number of money back plans available in India. Various life insurers offer these plans with best of the features to meet your needs.

How will you decide the best money back policy to meet your requirements?

Which money back policy is best for you?

Well, it depends on the various factors such as.

  • Your financial goals.
  • How much funds can you invest at present to buy a money back plan
  • How long you want to stay invested?
  • How you want your payouts to be?

With those factors you can try to find the most suitable money back policy for yourself. However, it is still like finding a needle in haystack.

But you don’t have to worry. Coverfox helps you in choosing the right money back policy in the fastest way. The key is to quickly compare the various features of different money plans available in India. Coverfox provides a cost-free platform to compare money back plans online.

You can compare different money back policies offered by various insurers online. With the easy comparison tool to compare, you can easily compare premiums, plan’s feature, inclusions, exclusions, payouts options, and other required details.

Things to keep in mind before you opt for a money back plan:

  • Decide the number of years you want to stay invested
  • The right sum assured to meet your financial needs
  • The number of pay-outs throughout the policy duration

Top selling Money Back Policies

Life Insurance CompanyAnnual New Business PremiumTotal Values of Claim SettledAverage Value of claimClaim Settlement RatioClaim Settlement RatioClaim Settlement Ratio
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%98%98%
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