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An In-depth Look at Money Back Plan

Have you ever thought about an investment which can give you easy access to cash as per your choice? And, at the same time, grows your wealth systematically, irrespective of the market conditions? And, also, serves the purpose of life insurance? Well, a money back insurance plan is a combination of all these benefits and more.

A money back life insurance plan has been a popular form of investment for people who look for reasonable returns, along with disciplined savings and life cover. It helps you achieve many key milestones of your life without creating any additional financial burden.

What is a Money Back Plan?
A money back plan is essentially an endowment plan which pays a fixed or an assured amount at regular intervals during the policy term to the policyholder. It also offers survival benefits – if the policyholder survives the policy term, he is entitled to the maturity benefit along with accrued additions such as bonuses. In case he dies, the nominee receives the entire sum assured along with a bonus, irrespective the amount of the sum assured that was paid periodically to the policyholder before his death.

Is a Money Back Plan Similar to a Term Insurance Plan?
No. While the basic purpose of both plans is to give you protection, the reason why you want to buy one or both varies, depending on your financial goals.

A term insurance plan is the most basic and hence, the cheapest of all life insurance plans. In this, the sum assured is remitted to the nominee in case of death of the policyholder during the term of the policy. In case he survives the term of the policy, nothing is payable in a basic term insurance plan. There are survival or maturity benefits or any other kind of returns, except the death benefit.

If a term insurance plan serves the real purpose of life insurance, then why should you go for a money-back policy? Well, everyone has different goals in life. You may want to save for the higher education of your child, enroll him or her in a hobby class, buy a car, or simply wish to accumulate wealth at a steady pace. Such financial goals and finer joys of life are easily reachable, when you own a money-back policy.

Why You Should Buy a Money Back Plan?
1. Protect Your Life: Since the risk cover is the basic component of a money back plan, it provides life cover for you. It secures your family’s financial future after you are not around.

2. Get Assured Income: You get regular and fixed payouts (which can be a percentage of the sum assured) on pre-determined dates (during the term of the policy). Consequently, you can be assured of supplemental cash flow and liquidity when you need the money to meet the planned expenses and intermittent necessities of your life.

3. Avail Bonuses: Apart from assured income at regular intervals, a money back plan also gives bonuses during or at the end of the policy term. The bonus is nothing, but a percentage of profits that the insurance company shares with the money back policyholders. A bonus is an additional benefit over and above the value of your policy.

There are usually three types of bonuses:

a. Reversionary Bonus: This bonus is calculated as a percentage rate on the sum assured of the policy. . It is declared every year and is paid to the policyholder at the time of maturity or to the nominee during a claim.

b. Terminal Bonus: This bonus is paid after the reversionary bonus is declared and if still the insurance company has residual profits to share with the policyholders. Since a terminal bonus is dependent on the performance of the policy, its value is not guaranteed.

c. Interim Bonus: This bonus is paid when the maturity or death benefit is claimed between two bonus announcement dates. It ensures that policyholders or survivors who claim benefits in the middle of a year will receive due credit for keeping the policy in force for that part of the year.

4. Keep Your Investment Safe: The safety of your investment is of the paramount importance to any investor. A money back plan gives steady and comparatively risk-free returns as they are not linked to the market.

5. Have Flexibility to Pay: Depending on your investment goal, you have the flexibility to choose the premium payment term of your money back policy. For instance, Cash Advantage Money Back Policy from ICICI Prudential gives you a choice of paying premiums for 5, 7 or 10 years.

6. Create Wealth: A money back plan encourages you to invest systematically and with discipline. The periodic payouts, bonuses and / or the maturity amount, if not being spent, can be reinvested in other financial instruments to earn further returns. This way, you will be able to create a substantial corpus, create wealth and plan a comfortable retirement.

7. Get Tax Advantage: The premium paid for a money back plan is exempt from tax u/s 80C and returns on maturity and claims are also exempted u/s 10 (10D).

8. Take a Loan: In case of a sudden financial exigency, you can even avail a loan under your money back policy. Usually, you can take a loan up to 80% of the surrender value of the policy.

A combination of liquidity, flexibility, safety, protection and tax benefits makes a money back plan ideal for investors, especially the ones with low-risk appetite.

Have you bought a money-back policy? If yes, rest assured, it is a wise decision. If no, what are you waiting for?

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