Financial inclinations, interests, requirements and goals have transformed over the years. Gen Z, Y, and X are equally interested in investing, saving, and getting returns from their financial tools/channels. And at times, they look for a financial product that combines some of these perks (if not all).
Subsequently, life insurance providers have upped their game by offering innovative products with multiple perks on a single tool. One such financial product is the money-back insurance policy. However, considering the multitude of policies that are emerging across the financial industry, acknowledging its details has become crucial before you finalise upon your decision to purchase such plans.
What is a Money-Back Insurance policy?
A Money-Back Insurance policy stands out by combining life insurance protection with periodic cash returns. Unlike typical life insurance plans, which only pay out a lump sum at the end of the term or upon the policyholder's death, a Money-Back policy provides regular payouts throughout the policy's duration. These payouts, called survival benefits, allow you to enjoy financial returns during your lifetime while still ensuring your loved ones are protected. In this article, we'll explore the main features, advantages, and important factors of Money-Back Insurance policies, helping you decide if this option suits your financial needs.
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How Does a Money-Back Insurance Policy Work?
A money-back insurance policy offers survival benefits, investment opportunities, and maturity benefits. Here's how it works:
- Set your financial goals: You can use a money-back policy to save for important milestones, like your child's education or your retirement.
- Purchase the policy: Let’s say you decide to buy a child money-back plan. In 2021, you take out a money-back policy with a sum assured of ₹40 lakhs and a term of 25 years. You’ll pay premiums throughout this period to maintain the policy.
What are the Components of a Money-Back Insurance Policy?
| Components | Descriptions |
|---|---|
| Policyholders Stand to Gain from Survival Benefit | A money-back insurance policy provides periodic payouts of a portion of the sum assured during the policy term, typically 10-15% every five years. At maturity, the remaining sum and any bonuses are paid out. The plan offers returns after a few years, with survival benefits paid regularly and a larger final payout at maturity. If the insured passes away during the term, the full sum assured and any bonuses go to the beneficiaries. |
| Death Benefits | If the insured person passes away, the nominee receives the death benefit, which includes the sum assured and any accumulated bonuses. Survival benefits, only paid while the insured is alive, are not included. If the insured dies before receiving any survival benefits, the nominee receives only the sum assured and accumulated bonuses. |
| Maximising the Value of Money with a Money Back Policy | Money-back plans may not yield high returns, but they offer three payouts: survival benefits, a sum assured at maturity, and a bonus. Early payouts are valuable because inflation reduces money's purchasing power over time, making these earlier payments worth more. |
| A Tax-Saving Advantage of Money-Back Plans | Money-back policies offer tax benefits under Section 80C if the premium is less than 10% of the sum assured. If the sum assured is more than five times the premium, the maturity amount is tax-exempt. This boosts returns for those seeking secure returns while providing tax savings, survival benefits, and bonuses. |
| Market-Linked Investments Lose Ground Against Money-Back Plans | Adding a money-back plan to your investments is smart because it shields you from market volatility. Unlike stocks or commodities, it offers guaranteed returns and insurance coverage. You can use the survival benefits for expenses like paying off loans or buying real estate. |
What are the Advantages of Money Back Insurance Policies?
- Offers Assured Returns: A money-back policy guarantees returns and provides insurance coverage, making it a secure investment. It ensures stable returns regardless of market conditions.
- Death Benefits: If the policyholder dies, the nominee gets the sum assured plus any bonuses. It acts like life insurance, securing your family's financial future.
- Optional Riders to Enhance Your Money-Back Policy Coverage: Enhance your coverage with optional riders like:
- Critical Illness Rider: Provides cash if diagnosed with severe illnesses.
- Accident or Disability Rider: Pays out if you suffer from accident-related disabilities.
- Waiver of Premium Rider: Keeps the policy active if you can't pay premiums due to illness
4. Lifetime Income from a Money Back Plan: The policy guarantees regular income through survival benefits, which can be used for expenses like education or travel.
5. Bonus Amounts: Money-back policies may offer bonuses at maturity, based on the insurer’s performance and timely premium payments.
6. Receive survival benefits: Receive survival benefits every five years, such as 20% of the sum assured (₹8 lakhs). Use these for needs like education or retirement.
7. Use the payouts: You can use the payouts you receive at various intervals for different purposes. For example, you can use the second payment of Rs. 8 lakhs in the policy's tenth year for your child's higher education. The third payment of Rs. 8 lakhs can be used for your child's marriage expenses when they turn 27. The fourth payment of Rs. 8 lakhs can be kept for your retirement purposes.
8. Receive maturity benefits: At maturity, you’ll receive the final 20% of the sum assured and any bonuses. For example, in the 25th year, you get the remaining Rs. 8 lakhs and bonuses.
Tips to Consider When Choosing A Money-Back Policy
When picking a money-back policy, keep these points in mind:
- Set Your Financial Goals: Know what you want to achieve in the coming years.
- Assess Your Investment Budget: Determine how much you can invest in the policy.
- Choose the Investment Term: Decide how long the policy lasts.
- Understand the Payouts: Know what kind of payouts you can expect.
Also, consider the policy's typical 20-year tenure and how much of the sum assured will be paid out in instalments. By considering these factors, you can make a well-informed choice and find the best money-back policy for your needs.
What should you choose: Money-back policy Vs. Term Insurance plans?
Money-back policies and term insurance policies serve different purposes, and which one is better depends on your individual needs and circumstances.
| Money-back policies | Term insurance policies |
|---|---|
| Money-back policies provide a lump-sum payout at regular intervals during the policy term while also offering life insurance coverage. | Term policies offer life insurance coverage for a specific period of time, typically 10, 20, or 30 years. |
| This type of policy is designed to provide both protection and savings and can be beneficial for individuals who want to plan for specific financial goals, such as their children's education or retirement. | They do not offer any savings component and are designed to provide a large payout to beneficiaries in the event of the policyholder's death. |
| However, money-back policies tend to have higher premiums and lower returns compared to other investment options. At the same, the protection component i.e. Insurance coverage is much less in case of a money back policy. | Term policies are often more affordable than other types of life insurance, making them a popular choice for individuals looking to protect their loved ones without breaking the bank. |
In short, money-back policies work well for those who want both life insurance and a savings component. On the other hand, term insurance policies are ideal if you're looking for affordable life insurance without the savings feature. Be sure to weigh your financial goals and needs before deciding on a policy.
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Conclusion
A money-back policy reassures customers with its full refund guarantee, encouraging them to try new products or services. Businesses should clearly communicate the terms to avoid confusion and build trust. A well-defined money-back policy can enhance customer loyalty and strengthen your bottom line.
