Money Back Policy

Why Should You Consider a Money Back Policy?

Money-back policies provide the benefits of an insurance policy as well as an investment, ensuring that the policy earns the policyholder an income instead of merely providing a lump sum in case of his/her demise.

These plans offer a guaranteed return on investment as well as periodic pay-outs and insurance cover, making it an ideal plan for individuals looking for both protection as well as a source of income.

In addition to 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 duration of the policy.

A thus provides policyholders with a secure and assured return on investment in addition to providing them with an opportunity to grow their wealth through investment opportunities.

How Does a Money Back Policy Function?

A Money back policy is a type of that offers policyholders Survival Benefits as well as investment opportunities in addition to Maturity Benefits.

An average money-back policy with a 20-year tenure would thus pay the policyholder what is known as a 'Survival Benefit' a few years after the start of the policy. Around 20% of the Sum Assured would be paid out periodically, while the balance would be paid out at the time of policy maturity with a bonus, if any.

In the event the insured individual does not survive till the policy maturation, the nominee would receive the Death Benefit (the entire Sum Assured) and the policy would be terminated.

Key Features of Money Back Policy:

The money back policy has various distinct features that set it apart from other life insurance products, as mentioned below:

1. Money back plans provide policyholders with low-risk investment options as well as insurance coverage.
2. The policies provide a regular source of income in the form of 'Survival Benefits' for the duration of the policy.
3. 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.

Benefits of a Money Back Life Insurance Policy:

The following are the key benefits of Money-back Life Insurance:

Income During Policy Term

Money back policy ensures that the policyholder will get the amount promised or the returns every few years. Hence, the survival value is accumulated after every few years and offers a second income source to the insured. The policyholders can use these funds for vacation, doing downpayment for a property, save the amount for emergency situations, or paying the school or tuition fees for the children. Thus, money-back policy provides immense benefits to the policyholders as compared to the other life insurance policies available on the market.

Guaranteed Returns

Money-back plan basically means that money is returned to the policyholder in the form of survival benefit after a pre-decided period. If the insured survives till the policy tenure, the money back is guaranteed. On the other hand, if the policyholder dies before the policy term, the nominee will be receiving the amount guaranteed and any accumulated bonuses. The same is applicable to the money back plans for children.

Bonus Amounts

The Money Back plan also provides bonuses to the policyholder in the form of an income. The insurer calculates the incentive every year as a percentage of the sum assured and accumulated. In case of the death of the policyholder, the accumulated bonus will be paid along with the total payout due.

Riders to Increase Cover

Many insurance companies sell add-on riders which are not compulsory to purchase. However, policyholders can add these riders to their money-back policy. These riders can be based on the medical conditions of the insured such as personal accidents, term riders, or life-threatening illnesses.

Tips for Selecting the Right Money Back Policy:

Choosing the right money-back policy is key to ensuring individuals receive the maximum benefits from a particular policy.

When choosing a money-back plan, individuals should look at the policy tenure. The average tenure for a money back policy is around 20 years.

As money back policies pay policyholders a Survival Benefit, prospective policyholders should ascertain the percentage of the Sum Assured that will be paid out in instalments. The amount should be enough to cover any expenses the policyholder might have.

The type of investments available through the investment component of the policy should be looked over. 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 five years, and others have a different timeline depending on the policy tenure.

Policyholders should also check to see if the money back policy offers tax benefits. Some plans do not offer a tax benefit if 20% of the Sum Assured is being provided as Survival Benefit.

Eligibility Criteria for Money Back Policy:

Prospective policyholders should meet certain criteria to qualify for a money back policy. The eligibility criteria are broadly listed below:

1. Policyholders should be above the minimum entry age and below the maximum entry age (varies from policy to policy).
2. Policyholders should be able to pay the Sum Assured as per the policy guidelines.

Documents Required for Money-back Policy:

The documents required to apply for a money-back policy are listed below:

1. Proof of age document.
2. Proof of address document.
3. Application form duly filled in.
4. Medical reports (if applicable).

Money Back Policy Calculator:

For the purpose of computing the premium amount as well as the benefits that will be accrued, a number of insurance companies provide individuals with policy calculators. These calculators can be used to approximate the returns as well as costs associated with the policy in question. The individual can then choose to apply for the policy after looking over the figures to see if they are in line with his/her requirements.

A money back policy calculator computes the average premium to be paid based on the policy tenure and the Sum Assured. Additional details such as the age of the policyholder are also factors considered for calculation.

On entering the figures, the calculator computes the maturity benefit payable at the time of policy maturity as well as the premium payable.

Money-back Policy Riders:

Money back policies provide policyholders with the option to add 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.

A general list of riders that can be purchased along with a money back policy is given below:

1. Accidental Death Rider: This rider provides coverage in case the policyholder meets with an accidental death as outlines in the rider guidelines. In such a scenario, the policyholder's beneficiaries/nominees will receive a lump sum as additional benefit.
2. Term Rider: This rider provides the policyholder with a waiver from paying the premium amount under certain circumstances but still provides coverage to the policyholder.
3. Critical Illness Rider: This rider provides the policyholder with financial assistance in the event he/she contracts a critical illness as defined by the rider.
4. Hospitalization Rider: This rider provides the policyholder with 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.

Comparison Between Guaranteed Money Back Plans and Fixed Deposit

The following table explains the comparison between guaranteed money back plans and fixed deposit:

Popular Money Back Plans by Insurers

Are Money Back Policies for You?

The decision to take on a money-back insurance policy must be well thought out and its benefits, returns on investment, etc. must be compared against those of similar investments.

If you are a healthy individual in need of life insurance coverage and an investment that helps you save on tax in addition to giving you regular returns, you may choose to opt for a combination of financial products, or opt for a single money-back insurance policy which does the same thing (albeit at a lower rate of returns). It's important to note that the risk involved in your investment is proportional to the returns you will receive.

You may purchase a life insurance policy and invest in a separate mutual fund, etc. and expose yourself to the risks involved in a mutual fund investment. It's ideal for those with a high-risk appetite. For those who find that their life savings are too valuable to leave to chance, an endowment life insurance policy with a money-back policy is ideal.

A money-back policy is far less risky than a mutual fund investment. In addition to being a tax-saving investment with guaranteed returns during the course of the term, it also provides comprehensive life insurance cover - which is a win-win situation for the investor (and his dependents).

There are arguments against money-back plans because the regular returns on investment are not as high as those offered by mutual funds, equity and debt-related investments of similar amounts for similar tenures. Investing in two separate financial products - one for a life insurance policy and one for a product directed at giving you returns on investment - will pay off better with a higher percentage of returns. That being said, it must be noted that while there are better options for returns on investments, money-back policies are first and foremost insurance policies. They just have the added benefit of giving you a return on the premium you've invested - at regular intervals during the plan tenure.

Consider your risk appetite and requirement for life insurance coverage before taking any major financial decision.

GST of 18% is applicable on life insurance effective from the 1st of July, 2017