Life insurance is an important financial instrument that protects your loved ones if you die unexpectedly. Money return plans have grown in popularity due to their unique characteristic of periodic payouts during the policy term.
If you are seeking for life insurance plans that not only give coverage but also some money back throughout the term, a money-back policy may be the best option for you.
Here, we’ll take a deeper look at how money-back plans work, breaking it down into easy principles to help you understand.
1) What is a money-back policy?
A money back policy is a type of life insurance plan that comes with periodic payouts which are usually paid once every few years of the policy’s term. These payouts are a percentage of the sum assured, and they are paid out at regular intervals. This plan is perfect for persons searching to have life coverage and cash flow.
2) How does it differ from regular life insurance?
With a regular life insurance policy, the sum assured is payable only when the policyholder dies. In a money back policy, the policyholder gets a part of the sum assured during the term itself apart from the life cover.
3) Payout schedule
It is defined in the policy. But money back policies usually pay out on every 5 years basis. Let’s say your policy lasts for 20 years, then you may receive a payout every 5 years. Payout frequency depends on the policy terms and the insurer.
4) How payout amounts are calculated
In a money back policy, the payout amount is a percentage of the sum assured. Let’s say your sum assured is ₹10 lakh and your payout is 20%, you will get ₹2 lakhs at each payout interval.
5) What happens if you don’t claim?
The amount of the payment is added to your final maturity benefit if you do not claim your payout at any stage. You can get the full sum assured (any unpaid payouts included) at the end of the policy term.
6) Life coverage is provided
Even though you do get periodic payouts your life coverage is still intact. Even if you have partial payouts, if you die while the policy term is on, the beneficiary receives the full sum assured.
7) Types of money-back policies
Money-back policies can be of two kinds, the traditional money-back plans and the ones with additional riders (critical illness cover). These riders are optional add-ons to your coverage.
8) Policy tenure
Generally, money back policies have a tenure of 15 to 25 years according to the plan chosen. The final maturity benefit is higher and the longer the tenure, the longer the payout schedule.
9) Maturity benefit
Once the policy term comes to an end, you will get the full amount of the sum assured, including any unpaid periodic payouts. The maturity benefit is this sum, which is paid at the end of the policy term.
10) Bonus additions
Bonus additions are a part of some money back policies which is a portion of the insurer’s profits. This sum assured is itself added to the bonus amount and paid along with the maturity benefit.
11) Tax benefits
According to Section 80C of the Income Tax Act, all premiums paid to money-back policies are eligible for the deduction. Furthermore, the maturity proceeds and death benefit are usually tax-free under Section 10(10D) subject to certain conditions.
12) Flexibility in premium payments
Flexibility in paying premiums is offered by most insurers. There are various modes you can pay such as monthly, quarterly, half-yearly, and annual. This flexibility allows you to control your money at your convenience.
13) Policy loan
The money back policies also allow you to take a loan against the policy if needed. The maturity benefit or death benefit will be deducted to reduce the loan amount and the interest on the loan needs to be paid.
14) Eligibility criteria
To be eligible for a money-back policy, you must fulfil certain age requirements. Typically, the minimum age is 18, while the maximum age for entry ranges between 55 and 60. The actual age limitations vary by insurance company.
15) Benefits of money-back policies
Money-back plans are ideal for people who require money during the policy period. Periodic payouts provide financial help for school, marriage, and other significant milestones while also providing life insurance.
Ending note
A money-back policy combines life insurance coverage with monthly cash payouts. It guarantees that you get monthly payouts during the period of the policy, while also protecting your family financially in the event of your untimely death.
A money-back policy is a comprehensive solution for long-term financial planning, with variable payout dates, tax benefits, and add-on choices. It’s great for individuals looking for a guaranteed return on their payments as well as the peace of mind that comes with having life insurance. When selecting the appropriate coverage, always carefully analyse the terms and conditions and keep your financial goals in mind.
