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Life is unpredictable, and no one knows what the future holds. Therefore, it's essential to have a backup plan in place to protect your loved ones financially in case of any unforeseen circumstances. Life insurance is one such backup plan that provides financial protection to your loved ones in case of your untimely demise. However, with so many life insurance policies available in India, choosing the right one can be confusing.
A policy that has gained popularity in recent times is the Money-back Policy in life insurance. In this article, we will provide a comprehensive guide to help you understand everything you need to know about Money-back Plans in India, including how they work, their features & benefits, eligibility, and drawbacks, so that you can make an informed decision.
A Money-back Policy offers you and your loved ones coverage and savings components. When you pay your premiums for a certain term, and then unexpectedly pass away while your policy is active, your beneficiaries will get the death benefit payout. If you survive the term of your Life Insurance Policy, then you're eligible to regularly receive an amount of your sum assured.
Many people prefer this plan because they can save money and receive Life Insurance policy coverage simultaneously. It is also a source of regular income for you for the entirety of your Life Insurance policy.
The Money-back plan works in such a way that you receive regular payouts (survival benefits) at certain intervals in life. It also offers a death benefit if you die when the policy is active. Your beneficiaries are entitled to this amount as the sum assured.
The cost of this plan is comparatively more expensive than the cost of a Term Insurance Policy. The premiums are higher because a Money-back Policy assures you, or your loved ones, a payout whether you pass away suddenly, or if you outlive your policy. Here are more insights on how this plan works.
Buying a Money-back Policy
When you buy this plan, you need to determine the life insurance coverage amount. Be sure to understand the terms of your policy, because every insurance company has different rules and regulations.
Premium payments can be made yearly or monthly, and will have to be made until the end of the policy.
If you suddenly pass away while your policy is active, your insurance company will give your beneficiaries this amount as the death benefit.
Receiving Premium as Money-back
If you outlive your Money-back Policy, your insurance company will pay you a predetermined amount. It is usually a portion of your total paid premiums, and will be paid regularly until your policy expires.
The features that your Money-back Policy offers you vary by insurance companies. Be sure to read and understand the terms and conditions before you purchase it. Here are some appealing features of this plan.
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.
Here are a few of the documents you may need to furnish for your Money-back Policy, but check with your insurance company for more details.
Proof of Income
The following are a few of the eligibility criteria to buy these plans.
You should be an Indian resident before you can qualify to buy a Money-back Policy from Indian insurance companies.
Most insurance companies state that you have to have a steady income to buy these plans.
You can buy this plan between the ages of 18 years to 60 years. If you're self-employed, the upper end of the entry age is raised to 65 years.
Most Money-back Plans offer terms that can be 5, 10, or 15 years long. You can choose what kind of term coverage you're looking for, based on your requirements and budget.
A premium payment mode is how often you'll be paying your premiums. In a Money-back Plan, you get to choose how often and how much you'll be paying when it comes to your premiums. You can make payments annually, bi-annually, quarterly, and monthly.
Here are the limitations of Money-back plans.
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.
Money-back Policies give you regular payouts from your insurance company. You will usually receive these payouts every 4 to 5 years. A Money-back Policy is similar to an Endowment plan.
Money-back Policies are low-risk, compared to other types of Life Insurance Policies. You'll get guaranteed returns from your sum assured and survival benefits, reducing the risk of losing your invested money.
No, money-back policies in life insurance in India may not be suitable for everyone. They are ideal for policyholders who require periodic payouts and a lump sum amount at the end of the policy term.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.