Money Back Insurance Policies: An Overview
Money Back Insurance Policies are a type of Endowment Plans. However, in Money Back Policy, a certain percentage of Sum Assured is returned to the Insured after a specific interval of time. The portion of money paid back to the Insured is known as Survival Benefit.
The tenure of Money Back Policies generally ranges from 15- 25 years. Survival Benefit is paid to the insured in an interval of 3-5 years. The sum is generally 15%-20% of the Sum Assured. The remaining portion of the Sum Assured is paid at the time of maturity with accrued bonus and loyalty additions.
If the policy holder dies while being covered under the policy then the nominee is paid the entire Sum Assured along with accrued bonus and loyalty additions as compensation, the Survival Benefit received by the Insured previously is not deducted from the Sum Assured.
FEATURES AND BENEFITS OF MONEY BACK PLANS
- Money Back Plans return certain percentage of the premium paid at regular intervals to the insured, these returns are known as Survival Benefits. The remaining portion of the Sum Assured is paid on completion of the Policy tenure along with Guaranteed Bonus Addition and Royalty additions (as declared by the Company).
- On death of the insured, the entire Sum Assured along with bonus (if accrued) is paid to the nominee, without any deduction of any survival benefit paid to the insured previously.
- Money Back Policies are Life Insurance Plans which have a maturity value as well as surrender value.
- Money Back Plans offer returns in form of bonuses and additional bonus on the investment.
- The return on the Investment is compounded on annual basis.
- Death/Maturity Benefit is equal to the Sum Assured cum additional bonuses and royalties declared under the plan.
- Premium on the Money Back Policy is much more as compared to Term Policy as it is a saving cum insurance scheme.
- Money Back Policy also comes with additional benefit such as Accident and Disability Cover for the insured depending on the terms and conditions of the Policy.
- Loans can also be availed against Money Back Policy by the Insured as it has got a Maturity Value.
- Money Back Policy also does not require Individuals to go through various medical tests for purchasing a policy.
Tax Benefit is available U/S 80C (upto Rs 1,50,000/-) for Investments in Life Insurance Policies. Maturity Value and Benefits are also exempted from Tax U/S 10 (10D).
Money Back Policy has a definite Surrender and Maturity Value.
FREE LOOK IN PERIOD
Money Back Policy comes with at least 15 days of Look In period. During which you can have a detail look into the policy and decide whether you are going to continue with or reject it.
A Grace period of 30 days after the due date is allowed for the Annual Payment of Policy Premium. Failing which the policy will lapse.
POLICY TERMS AND CONDITIONS
Each Insurance company tries to offer some additional benefit in order to attract subscribers for the same.
Thus policy terms and conditions may vary from company to company.
TENURE OF MONEY BACK POLICY
Money Back Policy is available for tenures ranging from 15 years to 25 years.
Insurance Regulatory and Development Authority of India (IRDAI) is a statutory body which regulates the Insurance Industry.
IS IT AN INVESTMENT OPTION?
Money Back Policy offers saving cum insurance option to the Individual but does not provide a complete solution. Many of the individuals find it attractive as certain percentage of the premium is return to the insured periodically. But overall it is an expensive Insurance Policy when compared with Term Insurance. It is preferred by conservative investors as it does not involve much risk and ensures regular return.
In my opinion these types of hybrid options don’t really help you in generating good returns nor do they provide you with adequate insurance cover.
Individuals should understand that Insurance and Investment are different from each other, with a purpose to serve different objectives.