Money-back is a traditional insurance plan which pays out the Sum Assured and the accrued bonuses in the event of death of the life insured. The beneficiaries or nominees of the life insured receive a benefit (called a death benefit) in case of the death of the policyholder.
A money-back policy gives money-back at regular intervals during the plan tenure and is a percentage of the Sum Assured. Money-back pay-outs are also 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 life insured dies during the plan tenure, the full Sum Assured is paid irrespective of the Survival Benefits already paid. This is what makes the money-back plans unique.
Why Money-Back Plans?
A money-back policy offers periodic pay-outs, allowing the investor to have a steady source of income. This allows the investor to meet expenses at different stages during the policy duration.
A lot of investors opt for Money back policies since they provide the benefits of an insurance policy as well as an investment, ensuring that the policy earns them an income instead of just merely providing a lump sum in case of his/her demise.
It offers a guaranteed return on investment as well as periodic pay-outs and insurance cover, making it an ideal plan for individuals looking for protection as well as a source of income. Apart from the standard life insurance offered by regular policies, a money-back policy offers a policyholder a maturity benefit as well as a regular income in the form of ‘survival benefits’ for the policy term.
It offers policyholders with a secure and assured return on investment in addition to providing them with an opportunity to grow their wealth through investment opportunities.
Continued Income – Money Back policies guarantee that the life insured gets returns or receives the sum assured every few years. The survival benefit gets accumulated every few years and thus forms the second source of income for the policyholders. These funds can be used for a holiday, an uncertain eventuality, purchasing a house or an apartment, or to pay off the children’s school or tuition fees. Money-back plans have an edge over other life insurance plans available in the market for all these reasons.
Income at Maturity - Money back plans can be an ideal choice for an investor who is looking for a safe and secure savings option. The money-back plan covers your life and provides definite returns and sum assured in case of death of the policyholder.
Income in Event of Death - In case of the unfortunate death of the policyholder, the nominee of the policy gets the sum assured and bonus if any. Money back policy also acts as a standard life insurance plan which will take care of the family and plan their future accordingly even if the policyholder is not around. Since it is a money-back, it is a guaranteed plan, and the nominee of the policy would definitely receive money.
Additional Bonus - The Money back policy also participates in insurers profits via the 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.
Additional Riders – Most money-back plans offer add-on riders to enhance the coverage of the investor’s policy. With respect to money back plans, riders like a personal accident, critical illness or a term rider is often suggested. An ideal money back plan consists 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.
Key Features and Benefits of Money-Back Plans
Some of the key features of money-back plans include:
Money-back plans are designed to be low-risk investment options combined with insurance coverage, thus providing two-fold benefit to investors.
These plans offer a regular source of income in the form of ‘Survival Benefits’ throughout the duration of the policy.
As part of money-back plans, in the event of the policyholder’s demise during the policy term, the entire Sum Assured is paid out to the nominee irrespective of the amount already paid through the Survival Benefits.
Maturity 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.
Some of the main benefits of money-back plans include:
Offers insurance cover during the policy term.
Investors get regular benefits throughout the policy term.
Acts as an insurance policy as well as a long-term investment with good returns.
Comes with tax benefits.
Less risk as compared to other investments offering similar returns like mutual funds.
Allows long-term savings and regular income.
Ensures that amounts are disbursed regularly.
Some plans extend the insurance coverage guaranteed death benefits even after the maturity date and the last survival period, up to when the life insured attains the age of 100.
There are optional riders that cover aspects such as specific illnesses, critical illnesses, disabilities, etc.
Ways to Choose a Money-back Plan
Opting for the right money back plan can help in ensuring individuals about maximum benefits from the same. While choosing a money-back plan, investors must look at the policy tenure and opt for an average tenure of about 20 years.
Since money-back policies pay policyholders a Survival Benefit, prospective policyholders should consider the percentage of the Sum Assured that will be paid out in instalments. This amount should be able to cover any expenses that the policyholder might have.
The investment options available through the investment component of the policy should be studied carefully. Policyholders should also verify the duration of the pay-outs being made over the course of the policy term as Survival Benefits. Some plans pay policyholders every 5 years, others have a different timeline depending on the policy tenure.
Money-back policies that offer tax benefits can also be considered. Some plans do not offer a tax benefit if 20% of the Sum Assured is being provided as Survival Benefit.
Eligibility for Money-Back Plans
Applicants must be above the minimum entry age and below the maximum entry age (varies from policy to policy).
Applicants should be able to pay the premiums as per the policy guidelines.
Documents Required for Money-Back Plans
Mentioned below are some of the common documents that are required to be furnished while enrolling in 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 in Money-Back Plans
With money-back policies, policyholders have the option to add a cover that is not included in the original policy document in the form of riders. These riders cover additional possibilities such as accidental death, hospitalization expenses, permanent disability and critical illness to name a few. The riders provided along with a money-back policy differ from insurer to insurer and also depend on other variables such as the policy tenure. Here is the list of common riders available as part of money-back plans:
Hospitalization Rider: This rider offers the policyholder assistance in paying hospital bills in the event the policyholder is hospitalized. A daily allowance is issued to the policyholder to cover expenses related to treatment.
Term Rider: Under this rider, the policyholder gets a waiver from paying the premium amount under certain circumstances. However, it still provides coverage to the policyholder.
Accidental Death Rider: This rider provides coverage in case the policyholder meets with an accidental death as outlined in the rider guidelines. In such a scenario, the policyholder's beneficiaries/nominees will receive a lump sum as an additional benefit.
Critical Illness Rider: The policyholder gets financial assistance under this rider. It is applicable in the event he/she contracts a critical illness as defined by the rider.
Top Money-Back Plans in India
|MONEY BACK PLAN||PLAN TYPE||POLICY TERM||MATURITY AGE||MINIMUM ENTRY AGE||MAXIMUM ENTRY AGE||MINIMUM SUM ASSURED|
|LIC Money Back Policy-20 years||A Traditional Endowment plan with money back facility||20 years||70 years||13 years||50 years||Rs. 1,00,000|
|Bajaj Allianz cash Assure||Traditional money back plan||16,20,24, 28 years||18-70 years||0 years||54 years||Rs. 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 years||55 years (for 7-pay and 10-pay options,) 60 years (single pay option)||7 days||Min/Max: 75 years (7-pay and 10-pay option 80 years (single pay option)||Subject to underwriting|
|Reliance Super Money Back Plan||Non- linked non-participating non-variable plan with life coverage||10, 20, 30, 40, 50 years||28-80 years||18 years||55 years||Rs.1,00,000|
|LIC Money Back policy for children||Child plan||25 years||25 years (min/max)||0 years||25 years||Rs.1,00,000|
What is a money-back policy?
The money-back policy is a traditional insurance plan that offers dual benefits of insurance as well as investment. It offers the lump-sum assured at the maturity of the policy or in case of an untimely death of the policyholder.
Will there be a penalty if I do not pay my premium for my money back policy on time?
If the premium amount is not paid within the grace period allotted for the same, the policy lapses and benefits associated with the policy cease. If the premiums have been paid for a minimum of 3 years, a paid-up value for a reduced sum is created.
How do I surrender my money back policy?
A money-back policy can be surrendered on its attaining cash value (after payment of 3 years’ worth of premiums). The policy will have a surrender value based on the policy tenure and the number of premiums paid.
Can I transfer my money back policy?
No, it is not possible to transfer your money back policy, however, you can make an assignment in another person’s name.
Is the amount received through money back policy taxable?
No. The amount received through the money back plan is tax-free under section 10(10D) of the Income Tax Act, 1961.
Investors often opt for a traditional life insurance policy for a long tenure to create a guaranteed corpus. However, when there is a need for funds before the tenure is over, there could be a problem and even a financial crisis. This is when a money-back plan can act as a saviour offering liquidity along with good returns.