Money Back Policies in Life Insurance

You're assured guaranteed returns of your premium payments with a Money-back Policy. These guaranteed returns will be paid to you in regular instalments over the course of your policy. The amount you receive regularly will be a portion of your sum assured, which will be paid in whole when your policy finishes.

One of the main features of money-back policies is that they provide regular payouts to the policyholder during the policy term. These payouts can be a percentage of the sum assured or a fixed amount, depending on the policy terms and conditions.

Money-back policies come with a survival benefit, which is paid out to the policyholder if he/she survives the policy term. This benefit is usually a percentage of the sum assured and is paid out in instalments over the policy term.

You will receive the remainder of your sum assured when your policy matures or expires. The payouts that you receive before the maturity benefit will be subtracted from your maturity benefit.

If you pass away while your Money-back Policy is active, your beneficiary or heirs will receive your sum assured. This death benefit will be paid in its entirety, whether any payouts were made to you or not.

A Money-back Policy provides you with tax benefits under Section 80C of the Indian Income Tax Act, 1961, which states that you can get a tax deduction on your policy premiums payments. The premiums are tax-free only under the Old Tax Regime. Payouts above Rs. 5 lakhs will be taxed under the New Tax Regime for Money-back policies purchased after April 2023.

In case you want to terminate your Money-back Policy for any reason, you will need to surrender your policy. You are entitled to a Surrender Value that is a percentage of your premiums paid. The Surrender Value is calculated by subtracting fees or charges that your insurance company has imposed.

A Money-back Policy gives you the option to utilise loan facilities. You can borrow money against your surrender value at any time.

Unlike other Life Insurance Policies, a Money-back Policy offers you a longer time to make your premium payments. Although these terms may vary by insurance companies, many offer payment terms for 20 years, or more.

These plans offer a high degree of flexibility to the policyholder. They can choose the policy term, premium payment term, and the payout frequency according to their needs and preferences.

The best part of a Money-back Policy is that you get savings and life insurance coverage for the duration of your policy. If you pass away while your policy is active, your beneficiaries will get the sum assured.

One of the key benefits of a Money-back Policy is that you can enjoy the liquidity in savings it offers you. You could use the amount towards your expenses, education fees, business financing, and clearing debts.

Money-back policies in life insurance in India typically offer lower returns when compared to other investment options. The primary reason is that a portion of the premium is used to pay for the survival benefit. As a result, the remaining amount available for investment is lower, resulting in lower returns.

Another significant drawback of money-back policies in life insurance in India is limited coverage. These policies may not provide adequate coverage for policyholders who require a higher sum assured. Additionally, the amount paid out as a survival benefit may not meet the policyholder's financial needs.

Money-back policies in life insurance in India may not keep up with inflation, leading to the erosion of the policy's value. The fixed payouts that the policyholder receives may not be enough to meet their financial goals and needs in the future, especially if the cost of living increases significantly.

Money-back policies in life insurance in India have higher premiums when compared to other types of life insurance policies. This is because the policy provides a survival benefit along with a lump sum payout at the end of the policy term. The higher premiums may not be affordable for all policyholders, leading to financial strain.

Money-back policies in life insurance in India may have tax implications. The survival benefits the policyholder receives may be taxable as per the Income Tax Act 1961. The lump sum amount received at the end of the policy term may also be taxable if the policyholder has not completed five years of continuous coverage.