Money Back Policy

If you are looking for an investment option that offers you life cover along with money redemption, then a money-back policy may just be the right thing to invest in. A money-back policy would be perfect for you if you are a traditional investor who is seeking a low-risk financial product that provides insurance and investment and also gives you the benefit of guaranteed returns. In simple words, this plan is suitable for people who may need money at regular intervals to meet their short-term or long-term financial goals. Life insurance companies offer such money-back plans.

What is a Money Back Policy? 

A money-back policy is a life insurance plan that unlike other such policies allows liquidity. In a standard life insurance policy, the benefit is received when the policyholder dies or the policy matures. A money-back policy, on the other hand, offers pay-outs at regular intervals during the policy tenure.

This policy is considered to be a suitable option for investors who are in their late 30s and are looking for notable pay-outs after a period of 5-10 years to fund their children’s education or marriage or to fund some investment in real estate. 

What makes this policy attractive is that in case the policyholder passes away during the tenure of the policy, the entire amount of sum assured would be given to the nominee. There would be no deduction of the survival benefits that have already been received. 

How does a Money Back Plan Work?

Let us understand how the money-back plans work, with the help of an example. Vinod bought a money-back policy with INR 20 lakhs as the sum insured for a policy tenure of 20 years. He would start receiving 20% of the sum assured as pay-outs after 5 years and receive the same every 5 years, and the remaining will be received when the policy ends. Thus, INR 4 lakh would be given in the 5th then 10th and then 15th policy year. When the policy matures in the 20th year Vinod will receive INR 8 lakhs. In case he passes away before the maturity date, the sum assured would be paid to the nominee as a death benefit.

Let us look at Vinod’s example in a tabular form:

It is also important to look at the various components that make up a money-back policy:

1. Survival Benefits
   Every few years you will receive a percentage of the sum assured. As discussed in the example above, Vinod received an amount of INR 2 lakhs every 5 years.

• He received 60% of the sum assured in the first 15 years
• He would receive the remaining 40% when the policy matures along with bonuses if any. 
  Note: Every policy has a different payout structure. The percentage of survival benefit that you receive is also not fixed and can vary between different plans.

          2. Death Benefit
When a policy is purchased, a nominee is selected by you. It could be your spouse, parent or child, or anyone else that you wish to receive the death benefit in case you die during the term of the policy. Let us see the case of Vinod, 

• If he dies in the 12th year of the policy, his nominee would receive the complete sum assured of INR 20 lakhs, despite the 2 pay-outs of 20% each.
• The next due survival benefit will not be paid as with the payment of the death benefit the policy will terminate. 
  Note: Even if all the survival benefits have been received, the death benefit will not be affected.

          3. Maturity Benefit
When your policy tenure is finished, the amount that you receive is called the maturity benefit. Vinod received 60% of the sum assured in the first 15 years and would receive the remaining 40% when the policy matured. This 40% is his maturity benefit. Depending on the performance of the company, one may receive reversionary and additional bonuses along with the maturity benefit.

Benefits of Investing in Money Back Policy

Given below are the benefits of a money-back policy:

1. Low-risk Investment 
   There are plenty of investment options available in the market today, but most entail a high degree of risk and uncertainty, thanks to the volatility of the capital market. Therefore, money-back plans are very suitable if you have a low-risk appetite.
2. Guaranteed Returns
   As these plans are not much affected by the highs and lows of the market, they would always give you positive returns. For a conservative investor, these are an ideal go-to policy.
3. Regular Source of Income
   Every few years you would receive a survival benefit that comes in very handy in paying-off loans, making deposits for a house/apartment or paying the children’s tuition fee.
4. Life Cover
   The policyholder is covered for life, and in case of his death, the nominee/beneficiary will receive the complete sum assured as the death benefit, even if survival benefits have already been received.
5. Assured Returns
   Reversionary and additional bonuses are given regularly to the policyholder.
6. Tax Benefits
   The premiums that you pay towards the insurance plans will be eligible for a tax rebate under Section 80C. The maturity/death benefit is also tax-free for the policyholder under section 10(10)D provided the sum assured is at least 10 times the annualised premium.
7. Flexibility of Payment
   You can pay your premium in a lump sum or at regular intervals-monthly, quarterly, half-yearly, or annually.
8. Option of Riders
   Opting for one or more Riders helps you enhance the coverage offered by your standard money-back policy.

What is Covered? 

A money-back plan is an endowment plan that offers guaranteed returns throughout the policy tenure, at regular intervals. The policy covers:

• Sum Assured
  The pre-decided sum assured is an amount that is guaranteed to be received.
• Survival Benefits
  Before the plan matures, the policyholder receives the survival benefits which may be more, when combined, as compared to the maturity benefit.
• Death Benefit
  After the death of the policyholder during the policy term, the nominee will receive the death benefit. Even if all the survival benefits have been received, the death benefit will not be affected.
• Maturity Benefit 
  When the policy tenure ends, the amount that is received is called the maturity benefit.
• Bonus
  You are eligible for two bonuses:
• Reversionary Bonus - Declared by the company annually, as a percentage of the sum, assured.
• Terminal Bonus - Is paid when you pay all your premiums consistently

What is not Covered?

The exclusions in a policy may vary from company to company, however, the most common of all is suicide. If the policyholder, whether sane or under insanity, commits suicide within the first policy year, the nominee would not receive the entire death benefit. Only a part of the premium would be payable.

How to Choose the Best Money Back Policy Online? 

When it comes to buying money-back policy, there are many options available in the market. Choosing the best money-back plan may be easy if you keep in mind the following parameters:

• Maximum Sum Assured
  Most companies do not cap the upper limit for sum assured, still it is recommended that you check whether the cover you are looking for is available or not.
• Cover Provided
  Checkout for any available inbuilt covers that may increase the scope of the plan’s coverage.
• Availability of Riders
  Insurance companies do provide riders but you need to check the list for the rider that you are looking for.
• Premium
  An important factor, the rate of premium can play a very crucial role in finalising the plan you are looking for.

With a money-back policy, you not only receive regular payouts but also get yourself covered with life insurance. If you are looking for a long-term investment that offers survival benefits, it may be ideal to invest in such a plan. However, there are still things you must consider before making a decision. Keep the following factors in mind if planning to buy one:

1. You must ensure that the periodic pay-outs will be sound enough to fulfill your anticipated financial requirements
2. The benefits and pay-outs received from the money-back policy are guaranteed, however, as compared to market-linked insurance-cum-investment plans, money-back policies offer a lower rate of interest
3. You would receive the payout only at the predetermined intervals
4. There is also no option to increase or decrease the sum assured and thus the premiums will remain the same and cannot be changed

Documents Required to Buy a Money Back Plan

When buying a money-back policy, you need to submit the following documents:

• Age Proof - Could be your - School Mark Sheet, Voter ID, Birth Certificate
• Identity Proof -  Could be your - Passport, Driving License, PAN Card, Aadhar Card
• Address Proof -  Could be your - Telephone Bill, Electricity, Ration card, Aadhar Card, Passport
• Income Proof -  Could be your - Salary Slip, Bank Statement, ITR File

Best Money Back Policy to Invest in 2021

Money Back Policy Tax Benefits

This plan will help you reduce your tax liability, in the following ways:

• The premiums that you pay towards the insurance plans will be eligible for a tax rebate under Section 80C.
• The maturity/death benefit is also tax-free for the policyholder under section 10(10)D provided the sum assured is at least 10 times the annualised premium.

Money-back Riders

Almost all the companies that offer money-back policies also offer riders. By paying a little extra you can increase the coverage of your plan. Life is unpredictable and these riders can come in very handy when you are in a medical/ financial crisis. 

Given below is the list of riders that are available with a money-back policy, however, it is recommended that before you invest in one, you compare the different options available in the market.

• Critical Illness: With this rider, you can avail a guaranteed sum in case you are diagnosed with any of the company-listed critical diseases.
• Accident or Disability Benefit: Any expenses that may arise due to an accident will be borne by the insurance company.
• Waiver of Premium: If you get critically sick or injured, this rider allows you not to pay the premium. With this waiver of premium rider, it can help when you are unable to pay the premium amount and will take care of the future premiums.
• This is applicable if the policyholder dies, especially in a Money Back Child Insurance Plan, where the premiums are waived off but the plan continues to pay the benefits as per schedule.
• Hospital Allowance: In case of hospitalisation, you would be eligible to receive a certain amount of cash for the hospital expenses being incurred.