A Complete Guide to Money Back Policy in India

Money Back Policy Guide - BimaBandhu

Amidst the uncertainties in life, we all want our lives to be backed by a life insurance policy for the long term to create a financial cushion for our loved ones. However, the need for funds before the life insurance tenure will be over, makes us think twice about buying the right type of life insurance policy. A traditional life insurance plan does not help in such situations, making us look for a plan that offers financial benefits during the plan tenure. It is where a money back policy does the right thing. 

A money back policy, as the name suggests, helps us deal with the problem of liquidity during the tenure of the plan by paying a certain amount regularly in between. Let’s dig deeper to understand various aspects of a money back plan.  

What is a Money Back Policy? 

A money back policy gives you the money paid back in certain proportions at regular intervals during the chosen tenure, hence the name. Its money-back proposition makes it one of the most popular life insurance plans in India. The amount paid to the policyholder is defined as the percentage of the chosen sum assured, and is also known as money back payouts or survival benefit.  

On maturity of your money back policy, you will also receive the remaining sum assured along with vested bonuses. In case of the insured’s (you) unfortunate demise during the plan tenure, the full sum assured is paid to the nominee irrespective of the money-back payouts paid earlier.  

Who Should Buy a Money Back Policy? 

A money back policy is an ideal type of life insurance for individuals who wish to receive guaranteed returns for their investments and look for regular payouts along with the insurance cover. Unlike a standard life insurance policy that offers benefits after it matures, a money back plan starts to pay a certain amount (survival benefit) during the policy term. 

As a policyholder, you will start receiving the survival benefit after a few years next to the inception of your money back policy. Hence, you can think of this policy as the one that offers regular income along with insurance coverage and maturity benefits. 

How Does a Money Back Policy Work (With Example)? 

Given below is a simple example to help you understand the workings of a money back policy: 

Mr. Sharma buys a money back policy that has a sum assured of Rs. 10 Lakhs for a 25-year tenure. He chooses to pay premiums regularly throughout the policy term. As per the policy terms, he will receive the survival benefits of 20% of the sum assured after every five years of the chosen tenure, i.e., in the 5th, 10th, 15th, and 20th policy year.  

On maturity which is after 25 years, he will receive the remaining 20% of the sum assured along with the bonuses accrued. Once the maturity amount and bonuses are paid, his money back policy will terminate. 

In case Mr. Sharma dies prematurely in the 17th year of the policy, the entire sum assured of Rs. 10 Lakhs will be paid to the nominee with an added bonus. This will be in addition to the Rs. 6 Lakhs he has already received before death. 

You should also know every money back plan can have a different payout structure and the benefits payable may vary between different plans. 

What are the Features of a Money Back Policy? 

Money back policies are loaded with features that are beneficial for the policyholder in several ways. Let’s look at some of the primary features in detail. 

Guaranteed Returns 

The guaranteed survival benefits payable regularly after every few years makes a money back policy different from various other market-linked plans. It is a go-to insurance product for a conservative individual who looks for a plan that offers life insurance coverage with good returns. 

Regular Returns to Support Financial Goals 

With the returns from a money back policy after every few years, you can plan to fulfill various goals in life that require financial support. You can also think of the survival benefits as a form of secondary income source that you can use to pay off loans, buy a house, or support your child’s education goals. 

Income At the End of Chosen Money Back Policy 

With a money back plan, you also receive a sum assured when its policy tenure ends. The returns are guaranteed and you will get the amount that has been promised at the time of buying the policy. You can easily choose a policy with a specific sum assured and premium that fits your budget.  

Income on the Event of the Insured’s Death 

A money back policy works as a standard life insurance plan in case of the insured’s unfortunate demise. It ensures the financial well-being of the family behind by paying a guaranteed sum assured along with bonuses if any. Many people think of a money back policy as a better alternative to an endowment plan 

Availability of Riders to Increase the Benefits 

Almost every insurance company offers add-ons or riders that you can add to your money back policy to increase its benefits. These riders are related to critical illnesses, personal accident, or extended coverage after maturity.  

You May Also Like to Read: How to Get Insurance Gyan Online 

What are the Benefits of a Money Back Policy? 

A money back policy, in general, offers three types of benefits to the policyholder – death benefit, survival benefit, and maturity benefit, along with bonuses if any.  

Benefits  Description 
Survival Benefits  Paid to the policyholder after every few years during the policy lifetime 
Death Benefits  Paid to the nominee after the death of the insured; includes sum assured and accumulated bonuses 
Maturity Benefit  Paid to the policyholder/nominee after the policy matures 

What are the Advantages of Buying a Money Back Policy in Life? 

Buying a suitable money back policy at the right life stage is highly advantageous for any individual looking for guaranteed returns. Given below are some of the primary advantages of purchasing a money back plan: 

  • Returns are accrued after a few years of buying the policy. 
  • These plans offer as good returns as many other investment plans. 
  • As the insured, you will get insurance coverage for the chosen plan tenure. 
  • The bonuses related to a money back policy significantly increase the total payout. 
  • It helps counter the volatility of market-linked investment instruments in your portfolio. 
  • As a life insurance plan, a money back plan also helps you save taxes under Section 80C of the ITA 

A money back policy bonus is the additional amount you will receive by the insurer based on its performance. In general, these bonuses are of two types: 

  • Reversionary bonus – It is declared at the end of every year by a life insurer for its policies and is added to the amount payable to the insured or nominee as per policy terms. 
  • Terminal bonus – Also known as persistency bonus, it is paid to the insured or policy nominee at the end of the policy term. Unlike reversionary bonus, this bonus is not certain.  

Why Should You Buy a Money Back Policy? 

You can think of a money back plan as a savings plan with which you can get survival benefits, maturity benefits, and bonus. With the help of returns from such a plan, you can achieve financial goals while also ensuring the well-being of your loved ones after you with life insurance coverage.  

In our lives full of uncertain events, things may suddenly take an unexpected turn and cause a financial burden. Having the assurance that you will receive returns from your money back policy will help you deal with financial stress if any.  

How to Choose a Money Back Policy? 

Various life insurance companies offer a wide variety of money back plans each with a unique set of features and benefits. This is what makes the selection of the right plan a confusing task. If you have plans to buy a suitable money back policy, you should follow the steps given below: 

  • Analyze your financial goals 
  • Check for the amount you can invest in a money back policy 
  • Assess for how long you would like to stay invested in the plan 
  • Think of the payouts you expect from the chosen plan 
  • Select the right sum assured that will help you meet your financial needs 

Recommended Read: A Guide to Claim Settlement Ratio 

What are the Optional Covers or Riders Available with a Money Back Policy? 

Most money back policies come with several riders that you can add to your base policy by paying an additional premium. The addition of riders to your policy helps in increasing the benefits you can get and safeguard against various risks related to life.  

Some of the most common money back policy riders are: 

  • Critical illness rider (to guard against a host of critical illnesses in life) 
  • Accidental or disability benefit rider (to cover the expenses that may arise from an accident and results in disability/death) 
  • Waiver of premium rider (to waive off the due premiums in case the insured is unable to pay them due to some specific reasons) 
  • Hospital cash benefit rider (to get daily cash for hospital expenses incurred during the tenure of your money back policy) 

What Should You Know Before Buying a Money Back Policy? 

Money back policy purchase is a smart way to plan for both investment and insurance cover in life. However, before you zero in on any specific plan, you should gain adequate knowledge about various aspects to make a well-informed decision. 

Consider the following things before buying a money back plan in life: 

  • Understand how a money back policy works and its benefits in comparison to various other types of life insurance plans 
  • Check for the exclusions of the money back plans available – what they do not cover or provide 
  • Get knowledge about the concept of risk and how it applies to this type of plans 

What are the Eligibility Criteria and Documents Required to Buy a Money Back Policy? 

As an interested buyer, you should meet the minimum age criterion for buying any money back plan and check its wordings. You cannot extend the policy beyond the maximum age allowed under the chosen plan.  

The documents required to buy a money back plan in India are: 

  • Income proof 
  • Address proof 
  • Identity proof 
  • Age proof 
  • Aviva Dhan Samruddhi 
  • Bajaj Allianz Cash Assure 
  • Bharti AXA Life Child Advantage 
  • Aegon Life Regular Money Back Insurance Plan 
  • Canara HSBC OBC Smart Stage Money Back Plan 
  • Edelweiss Tokio Life Cashflow Protection Plan 
  • Exide Life New Fulfilling Life Plan 
  • Future Generali Assured Money Back Plan 
  • HDFC Life Super Income Plan 
  • ICICI Pru Cash Advantage, and more 

Disclaimer: BimaBandhu does not endorse any insurance company or product. The purchase decision is entirely based on the reader’s discretion and needs.  

Visit BimaBandhu Before You Buy Any Money Back Policy 

Money back policies are meant to protect your financial interests and that of your family members under uneven circumstances. Here at BimaBandhu, you can gain comprehensive insights about what a money back policy is and how it works before you make any buying decision. 

Make BimaBandhu your knowledge partner before you make any insurance-buying decision. Insurance hai Zaruri, Par Sahi Chuno! 

Money Back Policy FAQs 

Is it risky to buy a money back policy? 

All investment products have certain risk factors associated with them. However, with money back policies, the risk is quite low and it also guarantees good returns. 

What are the tax benefits of buying a money back plan? 

You can reduce your tax liability by buying a suitable money back policy. Please ask a tax professional or your insurer about the exact tax savings you can make with this purchase. 

Which premium payment frequency should I choose with a money back plan? 

It is up to you to decide how often you want to pay the premium in a year. You can choose any of the payment frequencies – annual, half yearly, or quarterly. 

Is the amount I receive under my money back plan taxable? 

It is not taxable but tax free under Section 10(10D). 

Can I transfer a money back policy? 

You cannot transfer the policy but can make an assignment in another individual’s name. Please ask your insurer for more details. 

Can I revive a money back policy after it is lapsed? 

In general, you can revive the policy within two years from the date of lapse, subject to the terms defined by your insurer. 

Should I buy a money back plan online or offline? 

You can decide the mode of purchase the policy after analyzing the pros and cons carefully.  

 

1 Shares:
You May Also Like