Moneyback Insurance Plan

The money back policy, also commonly known as the child money back plan, is a life insurance product offering life cover during the plan’s tenure and maturity/survival benefits after end of policy term. It is both an investment & life insurance plan, typically purchased for children.

Money back policy is a type of life insurance product that allows the insured to receive regular returns, or as a lump-sum amount at a defined point during the policy period. The returns offered under a money back policy can be guaranteed or depend on investment performance, or a combination of both. This allows you to purchase a money back policy that is best-suited for your particular financial goals.

Let’s understand how a money back policy works in detail!

How Does A Money Back Policy Work?

In the case of the life insured’s death, a standard insurance plan pays out a lump sum amount to the nominee of the policy. This is known as the death benefit of life insurance. On the other hand, a money back policy is a form of life insurance policy that allows the insured to receive a portion of the sum assured at regular intervals rather than a lump sum at the end of the policy period. As a result, a money back insurance policy is an endowment scheme with certain liquidity.

The amount that is received as payouts with it is known as the ‘Survival Benefits’. These are compensated over the policy term, and the remaining sum assured is paid at maturity, along with any vested incentives.

Why Do You Need to Buy Money Back Policy?

Here are some reasons that make money back policy suitable for you:

Money back plans combine the benefits of an insurance policy with that of investment, meaning that the policy earns an income for the policyholder rather than simply delivering a lump sum in the event of his or her death.

These policies include a guaranteed return on investment, as well as annual payouts and insurance coverage, making them an excellent choice for those seeking both security and income.

As a result, policyholders receive a stable and guaranteed return on investment, as well as the ability to increase their wealth through investment opportunities.

Depending on your life stage, when you invest, the different types of money back, plans can be smart. For instance, a child money back plan can help you secure their future wisely.

Survival Benefit – Over the course of the policy, money is paid to the policyholder every few years. The payment begins within a few years of the policy’s inception and lasts until the policy’s maturity.

Consider this scenario: Akash has chosen a money back policy with a sum assured of Rs. 5 lakhs over a 20-year period. He will have to pay a 20-year premium and receive a portion of the sum assured at regular intervals.

Depending on the policy terms, he may receive 15% of the sum assured after the 5th, 10th, and 15th years of the policy, as a survival benefit, this is 15 X 3 = 45 % of the sum assured. He will also receive the remaining 55% of the amount guaranteed, plus any bonus, at maturity.

Death Benefit – In the event of an unfortunate incident, the policy nominee will receive the death benefit. This includes the sum assured as well as any bonuses accumulated on the money back policy. Notably, this does not include the survival bonus, which is only paid out to the insured while they are still alive.

Maturity Benefit – The insured individual receives the maturity benefit when the money back plan matures, and it consists of:

Sum Assured: It is the complete cover amount that the insured selects at the start of the policy.

Bonus: This includes the insurer’s declared reversionary benefits that have accumulated over time. This is largely determined by the company’s performance.

Tax Benefit – Section 80C of the IT Act allows you to deduct up to Rs. 1,50,000 in life insurance premiums from your taxable income per year. In addition, Section 10(10)D exempts the maturity benefit of the money back policy from taxation.

Before moving ahead with your purchase of a money back policy, whether it is a child money back plan or any other type of policy, you must be aware of the following features:

Guaranteed Returns – Money back plans mean that money is returned to the life insured as a survival benefit after a set period. When the policyholder survives the policy term, the money back is guaranteed. In the event of the policyholder’s death, the nominee receives the amount guaranteed as well as any accumulated bonuses, if any. This is also applicable to child money back plans as well.

Income During Policy Term – Money back policy ensures that the insured will earn returns or the amount promised every few years. Thus, the survival value is accumulated every few years and provides policyholders with a second source of income.

These funds may be used to take a vacation, save for an unexpected occurrence, save for a down payment on a house or apartment, or pay off the children’s school or tuition fees. As a result, money back policies have an advantage over other types of life insurance on the market.

Riders to Increase Cover – Most insurance providers sell optional add-on riders that the insured can ‘add-on’ to their money-back policy, as the name implies. These riders may be related to medical conditions like life-threatening illnesses, personal accidents, or term riders.

Bonus Amounts – The Money Back policy even contributes to the income of the insured by way of a bonus. Each year, the incentive is calculated as a percentage of the sum assured by the insurance provider, and accumulated. When the policy matures or if the policyholder passes away, the accumulated bonus is added to the total payout due.

Let’s refer to this scenario to better understand money back plans:

For every 5 years of the money back plan, the plan guarantees survival benefits of 25% of the sum assured. At the end of the term, 25% of the assured sum is payable, plus any accumulated bonuses.

Hence, Preeti receives Rs. 2.5 lakhs after a duration of 5 years, throughout the policy term, i.e. in the fifth, tenth, fifteenth, and twentieth policy years. Thus, Preeti has already earned Rs.10 lakhs by the 20th policy year.

She would be paid Rs. 2 lakhs, plus additional incentives, upon the maturity of the plan, and the plan would be terminated. In case of an unfortunate event, the nominee will receive Rs.10 lakhs in addition to the bonus, despite the fact that she has already earned Rs.6 lakhs in Survival Benefits.