Money back policies are a combination of insurance and investment. They are one of the traditional insurance policies that are distributed by the insurance companies. Unlike a regular endowment plan, where the policy amount (sum assured) is receivable either on death or at the end of the policy term, money back policies ensure that the survivor(policyholder) receives a certain percentage of sum assured regularly during the term of the policy. This policy helps in ensuring that the policyholder receives periodic payments in order to meet his financial needs. And if the policyholder dies during the term of the policy, then the nominees of the policy will get the entire sum assured irrespective of the earlier payments received by the policyholder.
How Does a Money Back Policy Work?
Money back policies are fixed term policies. The premium is paid till the end of the term or till the death of the policyholder whichever comes earlier. A part of the sum assured is returned to the policyholder once in every five years or four years according to the plan. The risk continues for the full sum assured even after the payment of installments to the policyholder. So if the policyholder dies before the maturity of the policy then the nominees would get the entire sum assured irrespective of the earlier pay-outs and then the policy would be terminated. The bonus also is payable for the full term. And if the policyholder survives the policy term then he will get the sum assured excluding the pay-outs already received and the bonus.
Example: This is a money back plan for a policy for 20 years and it shows that the policyholder receives periodic installments at the end of every 5 years.
The bonuses available in the money back policies are the revisionary bonus and the terminal bonus.
- Income from the policy during the policy term
A money back policy assures the policyholder that he/she will receive a certain percentage of sum assured during the term of the policy after every 4 or 5 years as decided by the insurer till the maturity of the policy or death of the policyholder. These periodic installments can be used by the policyholder according to his financial needs. This is the survival benefit that the policyholder receives and can be used by him to pay off loans, children’s education, and/or children’s marriage etc.
- Income on maturity of the money back policy
A money back policy has maturity benefits too. At the time of maturity of the policy, the insurer gives the sum assured excluding the part of payments already given to the policyholder along with the bonuses. Maturity benefits are available only when the policyholder survives the policy term.
- Income from Death of the policyholder in a money back policy
If the policyholder dies during the policy term then the nominees are entitled to receive the sum assured along with the bonuses accrued to the policy irrespective of the earlier installments received by the policyholder.
Features of Money Back Policy
- Money back policy has both Death and Survival benefits
- It is less risky as compared to other investments
- Premiums of a money back policy are paid on a monthly, quarterly, half yearly or a yearly basis.
- A money back policy provides a regular source of income through the periodic installments
- In the event of the policyholder’s death during the policy term, the entire Sum Assured is paid out to the nominee irrespective of the amount already paid through the Survival Benefits.
Why should one buy a money back policy?
One should buy a money back policy because it has plenty of benefits like:
- Provides life insurance coverage during the policy term
- It is a combination of both insurance and investment
- Money back policy provides regular benefits in the form of a percentage of sum assured at specific intervals.
- It is less risky as compared to other investments
- Gives a decent return like that of mutual funds
- Money Back policy provides a disciplined route for savings
- Money back policy helps you avail tax benefits. Premiums paid under life insurance policy are exempted from tax under Section 80 C and maturity proceeds are exempted from tax under Section 10 (10D)
Disadvantages of a Money Back Policy
A money back policy gives higher returns as compared to an endowment plan but still, it has some drawbacks which are as follows:
- Money back policies give a low rate of return when compared to market-linked insurance-cum-investment products.
- There is no freedom to change the pay-out intervals
- There is no flexibility to increase or decrease the premiums and the sum assured to suit growing incomes and lifestyle.
Riders for Money Back Policy
The riders which are available with Money back policies are as follows:
- Critical Illness Benefit
- Waiver of premium benefit
- Accidental death benefit
- Accidental permanent total/partial disability benefit
- Hospital cash benefit
- Family Income benefit
Money Back Policy Premium calculator
A money back policy premium calculator is a tool with the help of which you can calculate the premium payable by the policyholder. All you have to do is enter some basic information like your age, required sum assured and add-on covers if needed. The calculator then tells you the premium to be payable in either yearly, half-yearly, quarterly or monthly mode. This tool makes the comparison of money back policies offered by various insurers easier.
Documents Required for Money Back Policy
The documents required to apply for a money back policy are listed below:
- Proof of age document.
- Proof of address document.
- Application form duly filled in.
- Medical reports (if applicable).