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  • Money Back Policy – Overview & Key Details

    What is a Money Back Insurance policy?

    A traditional insurance plan pays out a lump Sum Assured in the event of the death of the life insured. The beneficiaries / dependants / nominees of the life insured receive a benefit (called a death benefit) if the worst should come to pass for the insurance holder.

    A money back insurance plan pays out the same maturity benefits in the form of several guaranteed “survival benefits" which are staggered evenly throughout the course of the policy. So, a money back insurance policy is an endowment plan with the benefit of regular liquidity.

    Why You Need To Buy a Money back Policy?

    A money back policy provides periodic pay-outs, ensuring a steady source of income to help policyholders meet expenses at different stages during the policy duration.

    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 just 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 money back policy 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 Money Back Policy Work?

    A Money back policy is a type of life insurance policy 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.

    Features of Money Back Policy:

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

    • Money back plans provide policyholders with low risk investment options as well as insurance coverage.
    • The policies provide a regular source of income in the form of ‘Survival Benefits’ for the duration of the policy.
    • 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.

    Money Back Life Insurance Benefits:

    • Provides insurance cover during the policy term.
    • Pays out regular benefits throughout the term.
    • Works as an insurance policy as well as a long-term investment with good returns.
    • Provides tax benefits.
    • Less risky than other investments offering similar returns like mutual funds.
    • Enables long-term savings and regular income.
    • Ensures that amounts are disbursed regularly.
    • Some plans extend the insurance coverage guaranteed death benefits even after the maturity date and the last survival period, up to when the life insured attains the age of 100.
    • There are optional riders that cover things like specific illnesses, critical illnesses, disabilities, etc.

    How to Choose a 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 5 years, 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:

    • Policyholder should be above the minimum entry age and below the maximum entry age (varies from policy to policy).
    • Policyholder 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:

    • Proof of age document.
    • Proof of address document.
    • Application form duly filled in.
    • 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 are given below:

    • 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.
    • 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.
    • 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.
    • 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.

    Popular Money Back Plans by Insurers

    1. LIC Money Back With Profit

      Feature and Benefits:

      • Comprehensive life insurance cover against death.
      • The amount payable on death is the Sum Assured plus all bonuses, as a lump sum, irrespective of all survival benefits paid earlier.
      • With-profit plan which participates in the profits of LIC’s Life Insurance business.
      • Surrender Values are available.
    2. Popular LIC Money Back Plans

    3. HDFC Life Super Income Plan – Money Back policy

      Feature and Benefits:

      • Limited premium paying terms of 8, 10 or 12 years.
      • Guaranteed yearly income, for 8, 10, 12 or 15 years.
      • Coverage against death throughout premium paying term and pay out period.
      • No need for medical tests on the completion of a short medical questionnaire.
      • Regular income at the rate of 8.0% to 12.5% of the Sum Assured on Maturity, payable yearly.
    4. SBI Life – Smart Money Back Gold

      Feature and Benefits:

      • Survival benefits of 110% of the Sum Assured paid till maturity.
      • 4 term options – 12, 15, 20 and 25 years.
      • Monthly, quarterly, half yearly and yearly premium paying modes.
      • 4 riders available:
        • SBI Life – Accidental Death Benefit Rider.
        • SBI Life – Accidental Total and Permanent Disability Rider.
        • SBI Life – Preferred Term Rider.
        • SBI Life – Criti Care 13 Non-Linked Rider.
        • Tax benefits.
    5. Birla Sun Life Insurance Bachat Money Back Plan

      Feature and Benefits:

      • Monthly base premium amount can be chosen from these bands:

        • Band 1 – Rs.400 to Rs.599, per month.
        • Band 3 – Rs.600 to Rs.800, per month.
        • Band 4 – Rs.900 and above, per month.
      • Annual and semi-annual modes of premium payment entitles you to rebates of 2% and 4% respectively.
      • Survival benefit of 20% of the monthly base premium paid out on the 5th, 10th and 15th policy anniversaries.
      • Maturity benefit payable after 20 years of the policy term includes
        • All monthly base premiums paid, plus
        • All Bachat addition earned, plus
        • Loyalty additions, minus
        • All Survival Benefits paid.
      • Death benefit includes:

        • All monthly base premiums paid (or Sum Assured, whichever is higher), plus
        • All Bachat addition earned, plus
        • Loyalty additions, minus
        • All Survival Benefits paid.
    6. Reliance Super Money Back Plan

      • Money back benefits paid every 5 policy years, until maturity.
      • Increasing regular monthly income.
      • Loyalty addition payable at the end of the premium paying term.
      • Maturity addition payable at the end of the policy term.
      • Policy term options of 10, 20, 30, 40 and 50 years.
      • Premium paying term only half of the policy term.
      • Monthly, quarterly, semi-annual and yearly premium paying modes.

    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 cover 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 to give 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 cover before taking any major financial decision.

    Money Back Policy FAQ’s

    1. Is the amount received through a money back policy taxable?

    A. If the premium paid is more than 10% of the Sum Assured for policies purchased after April 1st, 2012, the amount received is taxable.

    2. Is there a penalty if I do not pay my premium for my money back policy on time?

    A. If the premium amount is not paid within the grace period allotted for the same, the policy lapses and benefits associated with the policy cease. If the premiums have been paid for a minimum of 3 years, a paid up value for a reduced sum is created.

    3. Can I revive a money back policy?

    A. Money back policies can be revived within 2 years from the date the last premium was paid.

    4. Can I transfer my money back policy?

    A. As of now, it is not possible to transfer a money back policy. The policy can be surrendered if desired.

    5. How do I surrender my money back policy?

    A. A money back policy can be surrendered on its attaining cash value (after payment of 3 years’ worth of premiums). The policy will have a surrender value based on the policy tenure and the number of premiums paid.

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