| What is Money Back Insurance Policy? A money back insurance policy is a type of life insurance plan that provides both insurance coverage and regular payouts during the policy term. Unlike traditional endowment or term plans, which provide benefits only at maturity or upon death, a money-back policy returns a portion of the sum assured at regular intervals. |
Many people purchase money-back insurance, believing it offers the best of life cover and steady returns. However, in reality, these plans often result in high premiums, limited coverage, and returns that don’t outperform even a fixed deposit.
At Ditto, we have guided thousands of customers who were confused about these policies. For this guide, we’ve analyzed IRDAI rules, insurer brochures, and real customer cases to break it down clearly.
By the end, you will know how money back policies actually work, how they differ from other term plans, and whether they’re worth your money.
Not sure which riders you actually need? Talk to Ditto’s expert advisors today and get unbiased, personalised guidance - absolutely free.
How Does A Money Back Insurance Policy Work?
A money back insurance policy offers life cover throughout the term while providing periodic survival payouts (amount payable to a policyholder under an investment-based plan if they survive the policy term) at fixed intervals.
At maturity, the policyholder receives the remaining sum assured plus any bonuses. If death occurs during the term, the nominee gets the full death benefit, regardless of payouts already made.
Premiums can be paid yearly, half-yearly, quarterly, monthly, or through salary deductions, for the entire term or until death. Many money back plans also add bonuses, paid annually or periodically, depending on the policy.
To sum it up, a money-back insurance policy offers investment opportunities, survival benefits, and maturity benefits.
How is a Money Back Policy Different From ULIPs or Term Plans?
Let’s draw a deeper comparison between the three plan types to understand the differences:
| Category | Money Back Plan | ULIPs | Pure Term Plan |
|---|---|---|---|
| Purpose | Life cover + savings | Investment + life cover | Pure protection |
| Regulation | Non-linked savings | Unit-linked savings | Non-linked risk |
| Returns | Low, partly guaranteed | Market-linked, not guaranteed | None |
| Life Cover | ₹50K–₹20L | 5–10x premium | 20–30x income |
| Payouts | Regular payouts + maturity | Fund value at maturity | None |
| Liquidity | Loans/survival benefits | After 5-year lock-in | None |
| Surrender | Value builds after some years | Only after 5 years | No value (except limited pay) |
| Costs | Built into premiums, hidden | Many itemised charges | Very low |
| Risk | Insurer bears risk | Market risk on buyer | No investment risk |
To sum it up:
- Money back plans combine small life cover with guaranteed but low returns, plus periodic payouts.
- ULIPs mix insurance and investments, with returns depending on markets but higher costs and a 5-year lock-in.
- Pure term plans only provide large life cover at very low premiums, with no payouts if you survive.
What Does IRDAI Think of Money Back Plans?
IRDAI regulates money back plans under life insurance savings products. For regulation, the statutory body generally classifies these plans as:
- Participating (Par): Policyholders share in the insurer’s profits through bonuses.
- Non-Participating (Non-Par): Benefits are fixed and guaranteed.
Insurers must clearly disclose what is guaranteed, what is not, and the details of survival payouts, death cover, and maturity value.
Who Should Consider Buying a Money Back Policy?
The policy is specifically suitable for:
- Someone who may not be eligible for a term insurance plan due to medical or financial reasons.
- Those looking for basic, guaranteed returns and who are not comfortable with direct investments through mutual funds.
- Hyper-conservative individuals who prefer safety over market-linked/inflation-beating returns.
- Ditto’s Take: If you can handle investments independently, consider alternative options such as Fixed Deposits (FDs), National Pension System (NPS), mutual funds, or Public Provident Fund (PPF).
How is the Payout Structured During the Policy Tenure?
Let’s take the example of LIC’s 20-year participating new money back plan. It pays in two parts:
- Survival Benefits: 20% of the Basic Sum Assured at the end of the 5th, 10th, and 15th year. Always paid as a lump sum.
- Maturity Benefit: At the end of the 20th year, you get 40% of the basic sum assured plus vested bonuses. This can be taken either as a lump sum or through the settlement option, as shown below:
Instead of a one-time payout, policyholders (18+) can receive maturity or death benefits in instalments over 5, 10, or 15 years. The minimum installments are ₹5,000 monthly, ₹15,000 quarterly, ₹25,000 half-yearly, or ₹50,000 yearly. Payments begin immediately after maturity or death, and if the benefit is insufficient, it is settled as a lump sum.
LIC uses an interest rate (5.07% for May 2024–April 2025) to fix installments. The option can be withdrawn by the policyholder later, but once exercised, it cannot be changed after death.
Ditto's Take: The settlement option provides steady payouts, similar to a small pension, which may suit retirees or cautious investors. But since the interest rate is low (5.07% in 2024-25), taking the lump sum and investing it yourself could earn better returns.
To see how this plays out in real numbers, let’s compare LIC’s money back plan with a popular term plan.
LIC Money Back vs. Term Plan for a 30-Year-Old Person (Non-Smoker)
| Feature | LIC New Money Back 20Y (820) | HDFC Life C2P Supreme (Term) |
|---|---|---|
| Plan Type | Savings + Insurance | Pure Term Insurance |
| Annual Premium | ₹77.8k (1st year), ₹76.2k (2nd year onwards) | ₹15.16k |
| Policy Term | 20 years | 20 years |
| Premium Paying Term | 15 years | 15 years |
| Sum Assured (Life Cover) | ₹12.5 lakh | ₹1 crore |
| Total Premium Outgo | ₹11.44 lakh | ₹2.27 lakh |
| Moneyback Benefits | ₹2 lakh each at 5th, 10th, 15th year | None |
| Maturity (20th year) | ₹11.6 lakh (with Bonus) | None |
| Total Benefits (survival + maturity) | ₹17.6 lakh | None |
| Key Purpose | Wealth accumulation + small cover | Large protection cover |
Ditto’s Take: LIC Money Back (820) works like a forced savings plan with small life cover. Conversely, HDFC Life Click2Protect Supreme is considerably more affordable and offers a huge life cover (₹1 crore in this case). However, it does not provide any maturity benefit.
Our IRDAI-certified advisors suggest choosing a pure term plan for protection and investing the premium savings separately. Even with 6–7% returns, these investments can grow into a much larger amount than an LIC money-back plan, while still giving your family enough cover.
What Happens if the Policyholder Passes Away During the Term?
If the policyholder dies during the policy term, the nominee receives the full sum assured immediately, regardless of any survival benefits that have already been paid out. Any accrued bonuses are also paid in addition to the sum assured.
If the life assured had chosen the settlement option for the death benefit, the nominee would receive the payout in installments, subject to minimum thresholds, instead of a one-time lump sum.
What Happens if I Miss a Premium or Want to Surrender My Policy?
Most money back policies offer a grace period (usually 30 days for yearly, half-yearly, or quarterly premiums and 15 days for monthly premiums).
If you miss the grace period, your policy will lapse, and coverage will stop. If you've paid at least one year's premium, it becomes a reduced "paid-up" policy with minimal death or maturity benefits and no new bonuses. If less than a year's premium is paid, the policy will end, and you will lose all benefits.
Suppose you decide to exit your policy before maturity, after at least two years of premium payments. In that case, you are entitled to surrender the policy and receive a guaranteed or special surrender value, whichever is higher. .
For more details, refer to section 26.4 of the IRDAI circular on life insurance products.
Common Riders Available With a Money Back Insurance Policy
The following optional riders are available under this plan for an additional premium payment:
- Accidental Death Benefit Rider: Provides an additional lump sum payout in case of death due to an accident.
- Disability Rider: Offers monthly or lump sum benefits in case of permanent or partial disability caused by an accident.
- Critical Illness Rider: Pays a lump sum upon diagnosis of specified critical illnesses listed in the policy.
- Term Assurance Rider: Provides an extra death benefit similar to term insurance during the policy period.
- Waiver of Premium Rider: If the person paying the premiums passes away, all future premiums are waived, and the policy continues as initially planned, safeguarding the benefits for the life assured (often a child) without any payment burden on the family.
Bottom Line: Riders vary by insurer and plan, but they’re designed to give flexibility and extra protection beyond the basic survival and maturity benefits of a money back policy.
What are the Limitations of Money Back Policies?
Money back insurance policies have three specific limitations:
- Low Life Cover: The policies generally offer lower sum assured ₹50,000 to ₹20-25 lakhs) compared to pure term insurance plans (₹1-2 crores).
- Low Returns in the Long Run: They incur high costs, including agent commissions, and offer limited transparency in investments, which reduces overall gains. As a result, long-term returns are typically lower than those of FDs, PPFs, or even debt mutual funds.
- Limited Flexibility: These policies offer less scope for changes, modifications, or early exits without penalties.
Why Talk to Ditto for Term Insurance?
At Ditto, we’ve assisted over 7,00,000 customers with choosing the right insurance policy. Why customers like Nithin below love us:
✅No-Spam & No Salesmen
✅Rated 4.9/5 on Google Reviews by 15,000+ happy customers
✅Backed by Zerodha
✅100% Free Consultation
You can book a FREE consultation. Slots are running out, so make sure you book a call now!
Is the Money Back Insurance Policy Worth It?
At Ditto, we recommend against policies that combine insurance and investment, as such policies generally perform poorly in both areas. Our first recommendation is always term insurance, which provides high coverage sums, often in crores, ideal for protecting against liabilities, education expenses, and other financial needs.
For investment goals, mutual funds, PPF, or fixed deposits offer better returns with a lower cost structure, providing more financial flexibility than money-back insurance policies.
Still confused about your life insurance requirements? Speak to a Ditto advisor to decide if it’s the right fit for your long-term goals.
FAQs
Are money back policies tax-saving instruments?
Yes. Premiums paid for money back policies are eligible for tax deduction under Section 80C (old tax regime), and the maturity or survival benefits are generally tax-free under Section 10(10D), subject to applicable limits.
How much does a money back insurance policy cost?
The cost depends on the sum assured, policy term, and premium frequency. For example, LIC money back plans have premiums ranging from a few thousand to several lakhs per year, depending on coverage.
How is the claim process handled in money back insurance?
Claims are handled in the same manner as other life insurance policies. The nominee or policyholder submits the required documents, and the insurer processes the maturity, survival, or death benefit in accordance with the policy terms.
Who is eligible to purchase a money back policy?
Generally, anyone within the insurer’s age limits can buy a money back policy, usually from 18 to 65 years old, subject to medical and underwriting requirements. Some plans even allow parents to buy this add-on for their children.
What documents are required to purchase a money back policy?
You will need to provide proof of identity, proof of address, age verification, and a completed proposal form. Some insurers may also request medical reports, depending on your age and the sum assured.
Last updated on
