When planning your financial future, a life insurance policy that not only protects your family but also provides regular payouts can be a great choice. This is where a money back policy steps in—a unique insurance product that combines life coverage with periodic returns during the policy term.
Unlike traditional life insurance plans where you receive the benefits only after the policy matures, a money back policy ensures you get a portion of the sum assured at regular intervals. This makes it an excellent option for people who need periodic payouts to meet their financial goals or manage expenses like education, home improvement, or travel.
In this blog, we’ll explore what a money back policy is, how it works, and why it might be the right choice for your financial planning.
What is a Money Back Policy?
A money back policy is a type of life insurance plan that provides:
- Life Cover: Ensures financial security for your family in case of your untimely demise.
- Regular Payouts: A portion of the sum assured is paid at regular intervals during the policy term, often referred to as “survival benefits.”
- Maturity Benefit: At the end of the policy term, you receive the remaining sum assured, along with any bonuses.
This combination of insurance and periodic payouts makes a money back policy a versatile financial product, ideal for individuals who want a steady income stream while maintaining life coverage.
Key Features of a Money Back Policy:
- Periodic Payouts: Survival benefits are paid during the policy term.
- Maturity Benefit: A lump sum is paid at the end of the term.
- Life Cover: Offers a death benefit to your nominee if something happens to you.
- Bonuses: Some policies offer additional bonuses, increasing the total returns.
Example:
If you purchase a money back policy with a sum assured of ₹10 lakh for 20 years, you may receive payouts of ₹2 lakh every 5 years. At the end of 20 years, you’ll receive the remaining sum assured (₹4 lakh) along with any bonuses. If you pass away during the policy term, the full sum assured is paid to your nominee, regardless of the payouts already made.
A money back policy offers the dual advantage of financial security and liquidity, making it a preferred choice for individuals looking for a mix of insurance and investment benefits.
How Does a Money Back Plan Work?
A money back plan works by combining life insurance with periodic payouts, ensuring financial security while providing liquidity during the policy term. Here’s how it functions:
1. Payment of Premiums
The policyholder pays regular premiums (monthly, quarterly, or annually) to keep the policy active. These premiums cover both the life insurance component and the periodic payouts.
2. Survival Benefits
During the policy term, the policyholder receives a portion of the sum assured at regular intervals. These payouts, called survival benefits, can be used to meet short-term financial goals or recurring expenses.
3. Maturity Benefit
At the end of the policy term, the policyholder receives the remaining sum assured along with any accrued bonuses, provided the policyholder survives the term.
4. Death Benefit
If the policyholder passes away during the term, the full sum assured is paid to the nominee, regardless of the survival benefits already paid. This ensures comprehensive financial security for the family.
Example:
Consider a money back policy with:
- Sum Assured: ₹10 lakh
- Term: 20 years
- Payouts: 20% of the sum assured every 5 years (₹2 lakh).
Here’s how it works:
- At 5 years: ₹2 lakh is paid as the first survival benefit.
- At 10 years: ₹2 lakh is paid as the second survival benefit.
- At 15 years: ₹2 lakh is paid as the third survival benefit.
- At 20 years (Maturity): The remaining ₹4 lakh, along with bonuses, is paid.
If the policyholder passes away during the term, the full ₹10 lakh sum assured is paid to the nominee, regardless of the payouts made earlier.
What are the Benefits of a Money Back Policy?
A money back policy offers several benefits, making it a popular choice for those looking to combine insurance with periodic returns.
1. Regular Payouts
Provides periodic payouts during the policy term, helping meet short-term financial goals like education, travel, or home improvements.
2. Life Coverage
Ensures financial security for your family with a death benefit that is paid to the nominee in case of your untimely demise.
3. Maturity Benefit
At the end of the term, the remaining sum assured, along with bonuses, is paid, offering a lump sum amount for future needs or retirement planning.
4. Liquidity
The periodic payouts act as a steady income source, offering liquidity and reducing the need to dip into savings or other investments.
5. Low-Risk Investment
Compared to market-linked products, money back policies are low-risk, as the returns are guaranteed and not affected by market fluctuations.
6. Tax Benefits
Premiums paid are eligible for tax deductions under Section 80C of the Income Tax Act. The maturity and death benefits are also tax-free under Section 10(10D), subject to conditions.
7. Bonuses
Many policies offer additional bonuses, such as reversionary and terminal bonuses, increasing the total returns.
Example of Benefits:
Suppose you have a money back policy with a 20-year term and ₹10 lakh sum assured. You receive ₹2 lakh every 5 years, ensuring liquidity, and the remaining ₹4 lakh plus bonuses at maturity. In case of your untimely demise, the full ₹10 lakh sum assured is paid to your nominee.
These benefits make a money back policy a versatile financial tool for individuals seeking a blend of insurance and periodic returns.
Best Money Back Policies in India 2024
The maturity returns for a 10-year policy term are calculated if you start investing Rs. 10,000 monthly at 30 years old and continue for 5 years:
For Maturity Benefit Payout in Lump Sum
| Money-Back Plans | Entry Age | Policy Term (PT) | Premium Payment Term (PPT) | Life Cover | Maturity Amount (on 10th Year) |
| Max Life Smart Fixed Return Digital – Titanium | 18 – 50 years | 5/ 10 years | 5 years | Rs. 12.8 lakhs | Rs. 10.2 lakhs |
| Canara HSBC Life iSelect Guaranteed Future – iAchieve | 18 – 65 years | 10 / 12/ 14/ 15/ 20 years | 5/ 7/ 10/ 12 years | Rs. 12.2 lakhs | Rs. 9.09 lakhs |
| Bandhan Life iGuarantee Max Savings | 18 – 50 years | 10/ 12/ 14/ 15/ 20 years | 5/ 7/ 10 years | Rs. 12.6 lakhs | Rs. 9.2 lakhs |
| ABSLI Assured Savings Plan | 18 – 65 years | 10 – 35 years | 5 – 12 years | Rs. 14.7 lakhs | Rs. 8.26 lakhs |
| Edelweiss Tokio Life Guaranteed Growth Plan | 18 – 60 years | 10 – 30 years | 5/ 7/ 10 years | Rs. 12 lakhs | Rs. 10.2 lakhs |
| ICICI Pru Guarantee Income for Tomorrow | 18 – 45 years | 5/ 6/ 7/ 8/ 10/ 12 years | 10/ 12/ 15/ 16/ 20 years | Rs. 12 lakhs | Rs. 8.16 lakhs |
| Bajaj Allianz Life Assured Wealth Goal | 18 – 50 years | 99 years minus Entry Age | 7/ 8/ 10/ 12 years | Rs. 15 lakhs | Rs. 8.32 lakhs |
| Bharti AXA Guaranteed Wealth Pro | 18 – 60 years | 36/ 38 years | 5/ 10/ 12 years | Rs. 12.1 lakhs | Rs. 8.04 lakhs |
| TATA AIA Guaranteed Return Insurance Plan | 18 – 65 years | 6 – 40 years | Single Pay/ 5 – 12 years | Rs. 18.1 lakhs | Rs. 7.81 lakhs |
For Maturity Payouts as Long-Term Income
| Money-Back Plans | Entry Age | Policy Term (PT) | Premium Payment Term (PPT) | Life Cover | Total Sum of Monthly Payouts (Between 13th – 42nd Policy Year) | Lump Sum Payout (on 42nd Policy Year) |
| Max Life SWP- Long Term Income | 18 – 60 years | 7 – 11 years | 6/ 10 years | Rs. 12.8 lakhs | Rs. 51.5 lakhs | Rs. 11.7 lakhs |
| ICICI Pru Life GIFT- Pro Increasing Income with ROP | 18 – 60 years | 8 -17 years | 5 – 12 years | Rs. 12.3 lakhs | Rs. 54.7 lakhs | Rs. 11.8 lakhs |
| ABSLI Assured Income Plus- Income with Lump Sum Benefit | 18 – 60 years | 5 – 17 years | 5/ 6/ 8/ 10/ 12 years | Rs. 15.1 lakhs | Rs. 49.2 lakhs | Rs. 15.1 lakhs |
| TATA AIA Fortune Guarantee Plus- Regular Income | 18 – 60 years | 5 – 17 years | 5 – 12 years | Rs. 14.2 lakhs | Rs. 44.7 lakhs | Rs. 11.3 lakhs |
| Bajaj Allianz AWG- Second Income with ROP | 18 – 60 years | 99 – Entry Age | 7/ 8/ 10/ 12 years | Rs. 15 lakhs | Rs. 46.5 lakhs | Rs. 12 lakhs |
Who Should Buy a Money Back Plan?
A money back plan is suitable for individuals seeking both insurance coverage and periodic payouts. Here are some scenarios where a money back policy might be the right choice:
1. People with Short-Term Financial Goals
If you need funds at regular intervals for milestones like education, weddings, or travel, a money back policy ensures liquidity while keeping your insurance intact.
2. Risk-Averse Investors
If you prefer low-risk investments over market-linked products, a money back plan offers guaranteed returns without the volatility of the stock market.
3. Young Professionals Starting Financial Planning
Young individuals starting their financial journey can benefit from combining life insurance with periodic savings. The regular payouts can also be reinvested for better returns.
4. Parents Planning for Children’s Future
A money back policy can help parents save for significant expenses like school fees, higher education, or extracurricular activities through periodic payouts.
5. People Looking for Tax Savings
If you want tax-saving options, the premiums paid under a money back policy qualify for deductions under Section 80C of the Income Tax Act, while the payouts and maturity benefits may also be tax-free under Section 10(10D).
If you fit into any of these categories, a money back plan could be a smart addition to your financial portfolio.
How to Choose the Right Money Back Policy for You?
Selecting the right money back policy requires careful consideration of your financial goals, budget, and future needs. Here’s a step-by-step guide:
1. Assess Your Financial Goals
Determine why you need the policy. Are you planning for short-term goals, securing your family’s future, or both? Choose a policy that aligns with your objectives.
2. Check the Payout Structure
Review the survival benefit schedule. Ensure the payout intervals and amounts align with your expected financial needs during the policy term.
3. Evaluate the Sum Assured
Choose a sum assured that adequately covers your financial goals and ensures sufficient life insurance coverage for your family in case of unforeseen circumstances.
4. Compare Premium Costs
Ensure the premiums fit within your budget. Compare plans from different insurers to find one that offers maximum benefits at an affordable premium.
5. Consider the Policy Term
Opt for a policy term that suits your financial planning horizon. For example, parents may prefer longer terms that align with their child’s education milestones.
6. Check for Bonuses
Look for policies offering bonuses, such as reversionary or terminal bonuses, to maximise your returns.
7. Review Tax Benefits
Confirm that the policy qualifies for tax deductions under Section 80C and that maturity and death benefits are tax-exempt under Section 10(10D).
8. Verify Insurer’s Reputation
Choose a reliable insurance company with a high claim settlement ratio and good customer service.
Example:
If your goal is to save for your child’s education over 20 years, opt for a money back policy offering survival benefits every 5 years. Ensure the sum assured is sufficient to cover education costs and premiums fit comfortably within your budget.
By considering these factors, you can choose a money back policy that meets your financial needs, ensures your family’s security, and provides periodic liquidity throughout the policy term.
Fixed Deposits Vs. Money Back Policy
When deciding between a Fixed Deposit (FD) and a Money Back Policy, it’s essential to understand their differences. Here’s a comparison to help you choose the right option:
| Feature | Fixed Deposit (FD) | Money Back Policy |
| Purpose | Savings instrument offering fixed returns. | Life insurance with periodic payouts and maturity benefits. |
| Risk | Low risk with guaranteed returns. | Low risk with guaranteed payouts and insurance coverage. |
| Returns | Interest earned on the principal amount. | Periodic payouts (survival benefits), maturity amount, and bonuses. |
| Insurance Cover | Not applicable. | Provides life insurance coverage for the policy term. |
| Liquidity | Can be withdrawn before maturity with a penalty. | Offers periodic payouts but limited access to the full sum assured during the term. |
| Tax Benefits | Interest is taxable. | Premiums are tax-deductible under Section 80C; payouts may be tax-free under Section 10(10D). |
| Payout Schedule | Lump sum at maturity or periodic interest payments. | Periodic payouts during the policy term and a lump sum at maturity. |
| Suitability | Ideal for short- to medium-term goals. | Suitable for those seeking insurance with regular returns. |
| Additional Benefits | None. | Bonuses (reversionary or terminal) may enhance returns. |
Key Takeaway:
- Choose FDs for straightforward savings and guaranteed interest returns.
- Opt for a Money Back Policy if you need insurance coverage with periodic payouts for planned expenses or financial goals.
How to Invest in a Money Back Plan?
Investing in a money back policy is a simple process. Here’s a step-by-step guide to help you get started:
1. Evaluate Your Financial Goals
Determine why you need the policy—whether it’s for short-term liquidity, life coverage, or both.
2. Research Policies
Compare money back plans offered by different insurance companies. Look at features like survival benefits, maturity payouts, bonuses, and premium costs.
3. Choose the Right Plan
Select a plan that aligns with your financial goals, offers a suitable payout structure, and fits within your budget.
4. Consult an Advisor
Speak to a financial or insurance advisor to clarify doubts and understand the fine print of the policy.
5. Check Eligibility and Documentation
Ensure you meet the eligibility criteria for the chosen plan. Prepare required documents such as:
- ID proof (Aadhaar, PAN, or passport).
- Address proof.
- Income proof.
- Recent photographs.
6. Submit the Application
Visit the insurer’s branch or apply online through their official website. Fill out the application form and upload the necessary documents.
7. Pay Premiums
Choose a premium payment mode (monthly, quarterly, or annually) based on your convenience. Pay the first premium to activate the policy.
8. Policy Issuance
After document verification and underwriting, the insurer will issue your policy. You will receive a policy document outlining all benefits, terms, and conditions.
9. Track and Review
Keep track of your survival benefits and ensure timely premium payments to avoid lapses. Periodically review the policy to ensure it meets your evolving financial needs.
Investing in a money back plan ensures financial security and liquidity while helping you meet life’s milestones with ease.
Conclusion
A money back policy is a versatile financial tool that combines life insurance with regular payouts, ensuring both financial security and liquidity. Whether you’re planning for your child’s education, saving for a major milestone, or simply looking for a low-risk investment with periodic returns, a money back plan offers a reliable solution.
With its guaranteed payouts, life cover, and tax benefits, this policy is especially suitable for those seeking a balance between savings and protection. By understanding how a money back plan works and choosing one that aligns with your goals, you can take a significant step toward achieving financial stability.
FAQs
What is a money back policy?
A money back policy is a life insurance plan that provides periodic payouts (survival benefits) during the policy term, along with a maturity benefit at the end of the term. It also offers life coverage, ensuring financial security for your family in case of your untimely demise.
How does a money back policy differ from a term insurance plan?
A term insurance plan offers only life coverage, with no payouts during the term or at maturity. A money back policy, on the other hand, combines life coverage with periodic payouts during the policy term and a lump sum maturity benefit, making it a dual-purpose product.
What are the benefits of a money back policy?
The benefits of a money back policy include:
- Regular payouts during the policy term.
- Maturity benefit with bonuses at the end of the term.
- Life coverage for financial security.
- Tax benefits on premiums and payouts.
- Liquidity to meet short-term financial goals.
Who should buy a money back policy?
A money back policy is suitable for:
- Individuals with short-term financial goals like education or travel.
- Risk-averse investors seeking guaranteed returns.
- Parents planning for their children’s milestones.
- Young professionals combining insurance with savings.
How are survival benefits calculated in a money back plan?
Survival benefits are typically a fixed percentage of the sum assured, paid at regular intervals during the policy term. For example, a policy with a sum assured of ₹10 lakh may pay 20% (₹2 lakh) every 5 years.
Are the payouts from a money back policy taxable?
The payouts are usually tax-free under Section 10(10D) of the Income Tax Act, provided the premiums do not exceed 10% of the sum assured. Premiums paid are also eligible for tax deductions under Section 80C.
Can I surrender a money back policy before maturity?
Yes, you can surrender a money back policy before maturity. However, surrendering the policy early may result in reduced payouts or a surrender charge. It’s advisable to check the terms and conditions before surrendering.
How do I choose the right money back policy?
To choose the right policy:
- Assess your financial goals and payout requirements.
- Compare plans from different insurers for premium costs, benefits, and bonuses.
- Ensure the policy term aligns with your financial planning horizon.
- Verify the insurer’s claim settlement ratio and reputation.
What happens if the policyholder dies during the term?
If the policyholder passes away during the policy term, the nominee receives the full sum assured as a death benefit, regardless of the survival benefits already paid. This ensures comprehensive financial protection for the family.
Can I take a loan against a money back policy?
Yes, most money back policies allow you to take a loan against the policy after it acquires a surrender value. The loan amount depends on the policy’s terms and the surrender value at the time of the loan application.
