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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.

Why Do You Need to Buy a 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.

Provides Survival benefits

A money back plan provides survival benefits like a percentage of sum assured (at specified intervals) and maturity benefit along with accrued bonus.

Liquidity

This is the superiority of this plan as it pays a certain amount of the sum assured at regular intervals during the policy duration. This, in turn, provides you the required liquidity and you may plan your finances better to meet different goals during your life.

Provides risk-free returns

If taking risk is not your cup of tea, then the Money back plan is an ideal choice for you. As there is no risk involved, one can opt for the best money back policy.

Best Money Back Policies in India in 2018

Money Back PlanPlan TypePolicy TermMaturity ageMinimum Entry AgeMaximum Entry ageMinimum Sum Assured
LIC Money Back Policy-20 yearsA Traditional Endowment plan with money back facility 20 years70 years13 years50 yearsRs. 1,00,000
Bajaj Allianz cash AssureTraditional money back plan 16,20,24, 28 years 18-70 years0 years54 yearsRs. 1,00,000
SBI Life Money Back Gold A Savings plan with life coverage 12 years (option 1) 15 years (option 2) 20 years (option 3) 25 years (option 4) 27- 70 years 15 years ( option 1 and 2), 14 years ( option 3 and 4) 55 years(option 1 and 2) 50 years( option 3) 45 years(option 4) Rs. 75,000
Aegon Life Regular Money Back Insurance Plan Money back plan with coverage 20 years55 years (for 7-pay and 10-pay options,) 60 years (single pay option)7 daysMin/Max: 75 years (7-pay and 10-pay option 80 years ( single pay option) Subject to underwriting
Reliance Super Money Back PlanNon- linked non-participating non-variable plan with life coverage 10, 20, 30, 40, 50 years 28-80 years18 years55 yearsRs.1,00,000
LIC Money Back policy for children Child plan25 years25 years (min/max)0 years25 yearsRs.1,00,000
Canara HSBC OBC Smart Stage Money Back planTraditional participating money-back Life Insurance Plan 15 years70 years8 years55 yearsRs.1,00,000

Features of Money Back policy

  • These are low-risk savings options that provide insurance coverage as well.
  • It is often referred to as a source of regular income in the form of Survival Benefits.
  • In case of the policyholder’s demise during the policy term period, the entire sum assured is paid to the nominee.

Guaranteed Returns from Money back policy

Money back plan simply means that money comes back to the life insured after a specific interval of time as survival benefit. The money back is guaranteed on the survival of the policyholder. However, in case of death of the policyholder, the nominee gets the sum assured and accrued bonuses, if any.

Let's us take an example to understand what the Guaranteed Returns under a money back plan is.

  • Aditya has opted for a Money Back Life Insurance policy and has a plan with a sum assured of Rs. 5 lakhs for a term of 25 years. He would need to pay a premium for 25 years and get back a part of the sum assured at regular intervals.

  • That means, he would get 15% of sum assured after the 5th, 10th, 15th, and 20th year of the policy, which is 15 X 4 = 60% of the Sum Assured as Survival Benefit. Also, on maturity he would get the remaining 40% of the sum assured and bonus, if any.

  • Here, the sum assured that he would receive on every 5 years of interval period, is the Guaranteed Return under a money back plan policy.

  • Additionally, the 40% on maturity is also your Guaranteed Return under a money back policy.

Income during the lifetime of the Money Back Plan

Any particular expense in the future can be taken care as the Money Back policy guarantees that the insured will get returns or will receive the sum assured every few years. The survival benefit is accumulated every few years and thus forms a second source of income to the policyholders. One can use these funds to take a holiday, save them in case of an uncertain eventuality, save for deposit of your house or an apartment, or to pay off the children’s school or tuition fees. Therefore, money back plans have an edge over other life insurance plans available in the market.

Income on the maturity of Money Back Plan

The money back plans are the best-known ones as they come across as an ideal choice for a person looking for safe and secure savings option. Anyone would readily opt for a Money Back plan as it covers your life and provides definite returns and sum assured in case of death of the policy holder.

Income during the death of the insured person in a Money Back Plan

In case of an unfortunate event (death) of the policyholder, the nominee of the policy gets the sum assured and bonus, if any. Also, the money back policy acts like a standard life insurance plan which will take care of your family and plan their future accordingly even when you are not around. Since it is a money back, it is a guaranteed plan, and the nominee of the policy would definitely receive money.

Bonus amounts help increase payout in a money back policy

The Money back policy also participates in insurers profits through bonus. The bonus gets declared as a percentage of the sum assured by the insurance company every year and gets accrued. This accrued bonus is added to the overall payment receivable on the maturity of the policy or if the policyholder dies. The bonus part of the money back plan is mainly dependent on the performance of the insurance company and if the customer has been obedient enough to pay all the premiums on time.

Add on riders available for the insured to increase their cover

Almost all insurance companies offer add-on riders to enhance the coverage of your policy. With respect to money back plans, riders like a personal accident, critical illness or a term rider is often suggested.

Also, it is advisable to compare, research your money back plan before you invest in one. An ideal money back plan should consist of lower risk, assured returns and an additional tax benefit. Experts recommend choosing a money back plan that suits your payout while fulfilling your financial needs.

Benefits of a Money Back Policy

The Money Back policy provides various benefits like death benefit, maturity benefit and survival benefit along with bonus which is paid in addition to the sum assured. This bonus from the insurance company is based on its performance. It is vital to take a look at various components that make up a life insurance policy.

Survival Benefits

Money is paid to the policy holder every few years over the lifetime of the policy. The payment gets started after some years of the start of the policy and continues until maturity. For Example: Rohan has opted for a Money Back Life Insurance policy and has a plan with a sum assured of Rs. 5 lakhs for a term of 20 years. He would need to pay a premium for 20 years and get back a part of sum assured at regular intervals. He would get 15% of sum assured after 5th, 10th and 15th year of the policy. Which is 15 X 3 = 45% of the Sum Assured as Survival Benefit. Also, on maturity, he would get the remaining 55% of the sum assured and bonus if any.

(Note: The numbers in the above example are for representational purpose only. Actual term of years, sum assured and % may vary in reality.)

Death Benefits

The nominee of the policy gets the death benefit of the insured person. This benefit includes sum assured of the money back policy and bonus accumulated on the policy. But, this does not include the survival benefit as they are only given to the insured when they are alive. For Example: Mr. A passes away in the 17th year after taking the policy. In that case, the nominee will receive the sum assured and bonus that would have been accrued over the past 17 years since it was taken. The remaining survival benefits will not be paid.

Maturity Benefit

This benefit is received by the insured person on the maturity of the money back plan and includes three components:

  • Sum Assured: This is the total cover that is chosen by the insured at the start of the policy.
  • The Bonus: This includes the accrued reversionary bonuses declared by the insurer. The latter mostly depends on the performance of the company.

How to Choose a Money Back Policy

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

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.

Money Back Policy FAQ's

Is the amount received through a money back policy taxable?

The amount received through money back plan is tax free under section 10(10D) of the Income Tax Act, 1961.

Is there a penalty if I do not pay my premium for money back policy on time?

In case you fail to pay your premium on time, the policy enters a grace period. And if you again fail to pay your premium, the policy will be lapsed. Reviving a lapsed policy includes paying the due premiums plus interest and revival charges if any.

Can I transfer my money back policy?

No, you cannot transfer your money back policy, however, you can make an assignment in another person’s name.

Can I revive my money back policy?

Yes, you can revive your money back policy within a period of two years from the date of lapse, subject to you fulfilling the revival conditions set by the insurance company.

How do I surrender my money back policy?

One cannot surrender the money back policy online. It can be done through the insurance company's branch office.

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