Features of a Money Back Policy
A money back plan such as LIC money back policy or others has a host of benefits for the investor looking for a guaranteed return plan along with life insurance cover. The fact that a money back policy provides a payout after a few years and this continues through the life of the plan makes it a sure fire winner for any conservative individual who is looking for a safe and secure cover with guaranteed returns. Life insurance companies have come up with a host of benefits for people who are looking at money back plans as an investment cum insurance option. Additionally, most companies come up with new plans with various new features and benefits on a regular basis.
Guaranteed Returns from a Money Back Plan
The guaranteed returns from a money back policy help it edge ahead of market-linked plans. A money back plan is an ideal investment for a person looking for a safe and secure investment. Since it also provides an insurance cover, a conservative buyer would find it the ideal go-to vehicle for definite returns. Most of the recommended plans for better returns are linked to the equity or debt market, which are not risk-free avenues of investment. Consequently, most of the plans are unable to deliver the high returns desired by the individual. The fluctuating market ensures the investor does not get any guarantee that his investments will give him any positive returns. In bear markets, these plans may not perform well and the insured party may end up losing money rather than gaining better returns.
Income During the Lifetime of the Money Back Plan
A money back policy guarantees that the insured party will receive a sum every few years to take care of any large expenses in the future. The survival benefits accrue every few years and forms a second source of income for the policyholders. These funds can be used to pay off loans, make a deposit for a house or an apartment, pay off the childrens tuition fees, or simply take a holiday. The survival benefit of a money back plan makes it a life insurance policy that is a notch above the other covers in the market. Other life insurance policies do not provide this cover. People looking for a life insurance policy must note, however, that the survival benefits only accrue if the insured party is alive and well. In case of the insured party passing away during the tenure of the policy, the sum that will be paid to the nominees will be the sum assured and the bonus if any. This feature is the reason people call survival benefits a reward from the insurance company to the assured for taking proper care of himself or herself.
Income on Maturity of the Money Back Plan
A money back policy also works like a normal insurance cover and pays the sum assured or the maturity amount at the end of the policy tenure. The returns are guaranteed and secure and investors get the amount they were promised at the start of the policy. Most of the life insurance companies offer a range of sum assured amounts, sometimes starting from as low as Rs. 50,000. These low sum assured are perfect for the rural population who have lesser expenses and still need an insurance cover. A smaller cover can be easily purchased by blue collar workers who need a money back policy that will safeguard their money and also provide payout amounts along the lifetime of the plans in addition to the maturity amount. A lot of life insurance companies offer `no limit sum assured amounts also. This means that the insured can get themselves covered for as much amount as they deem feasible.
Income on the Death of the Insured Person in a Money Back Plan
The nominees also receive the sum assured in case the unfortunate happens to the policyholder. This is in addition to any bonus – reversionary or additional – that the insured company may pay to the family members (nominees). The money back policy acts like a standard insurance plan in such cases and helps the insured to plan for the future well-being of their families even if they are not there anymore. The guaranteed nature of the sum assured means that the family or nominees would definitely receive the money. The guaranteed nature of the sum assured makes a money back plan a better option than riskier life insurance policies such as endowment plans.
Bonus Amounts Help Increase Payout in a Money Back Policy
A money back plan comes with two types of bonus amounts – a reversionary bonus and an additional bonus. The reversionary bonus is the bonus declared as a percentage of the sum assured every year by an insurance company. This sum is added to the overall payment receivable on maturity of the policy or the worst happens. The bonus amounts get added every year to the previous years and at the end works out to be a tidy sum. Insurance companies may sometimes also offer an additional bonus. This bonus is generally dependent on the performance of the insurance company and based on the loyalty shown by the customer by paying all premium on time during the tenure of the policy.
Add on Riders Available for the Insured to Increase Their Cover
All insurance companies offer optional add-on riders that the insured can, as the name suggests, `add-on to their money back policy. These riders may relate to specific medical conditions such as critical illnesses, personal accident or a term rider. Some money back insurance policies also give the option to continue the life cover even after the policy has matured.
Research, compare, and purchase your money back policy using our booking engine. A well-chosen insurance policy gives you benefits, such as lower risk, additional tax benefits, and assured returns. It is recommended to choose your money back life insurance plan with adequate care while paying sufficient attention to the premiums. Ensure that the time and amount of the payout suits to your financial plans and anticipated needs.
If you are considering buying money back life insurance policy, keep in mind they provide a death claim of the full amount insured at any time during the policy, regardless of any periodic payouts that have been given. The bonus amount is also calculated on the full amount insured. By bringing together information and features of the available money back insurance plans in one place, Policybazaar.com provides a convenient way to make the wisest insurance choice.
Advantages of a Money Back Policy
A money back plan is one of the best life insurance policies for an individual looking for a guaranteed money return policy. These policies also work out well as the backup policy for aggressive investors who prefer to use the stock and commodities market to increase their wealth. Moreover, the fact that these policies also offer a guaranteed payout after a few years of investment means that they are offering much better returns than the standard life insurance policies which only pay when the policy matures. These policies also work well as a standard insurance cover. The nominees receive the money from the sum assured in case the unfortunate comes to pass.
Returns Accrue Only After a Few Years
The best thing about a money back plan is that the returns accrue only after a few years of investment. In case of long term policies of say 15 or 20 years, the amount is paid every few years and adds up to a tidy sum. In addition, the rest of the benefits are paid on the maturity of the policy. The insurance companies provide this benefit in a two stage process. The first stage comprises of the amounts that are paid every few years. The first and the last payout periods are generally spread evenly over the life of the policy. This means that if you buy a policy of say 18 years, the survival benefits may be paid to you every three years starting from the sixth year to the fifteenth.
The second stage comprises of the final payout that is larger than each of the previous payouts and given at the time of maturity of the policy with the maturity amount. Investors should note that survival benefits are paid only if the insured party continues to live. In the case of any unfortunate event that leads to the passing away of the insured party whether by accident or otherwise, then the survival benefits do not accrue and the nominees only receive the sum assured plus any bonus amount.
Value of Money Higher with a Money Back Policy
Many sceptics counter that money back plans do not offer nearly as good returns as investment plans. However, they are generally missing the point of a money back policy. The thing to remember for people is that it is an insurance cover (one that pays back money over the lifetime of the policy but an insurance cover, nonetheless) and is not a pure play investment plan. The insured party receives three-way payouts – the survival benefits, the sum assured on maturity and the bonus. Leaving all things aside the real value of the survival benefits are likely to tilt the scales in favour of money back plans. If you are wondering why, its because the value of money decreases over time. This means that what Rs. 100 will buy you today, it will not do so 2-3 years down the line. Lets try to clarify this further with an example.
Suppose you are having a meal at a restaurant or watching a movie at a place where you are regular over the last 4-5 years. If you think back, you will remember that your favourite dish in the restaurant or the bag of popcorn you are munching on used to cost less two years back. It may have been Rs. 10-20 cheaper but it was definitely less costly than before. This means that if you are paying Rs. 100 now for the meal or popcorn, you probably paid Rs. 80, Rs. 90 or even less two years ago. Approaching it from a different perspective, what this means is that Rs. 80 or 90 is now no longer paying for the same amount of food as it used to two years ago. You will receive a lesser amount of food if you pay Rs. 80 or Rs. 90.This is commonly known as reducing value of money. Applying this logic to a money back policy of say 20 years means that the payout you receive in the fifth, tenth or fifteenth year (say) is worth more than if you have received it at the end of the policy tenure.
Insured Receives the Full Sum Assured on Maturity
A money back plan provides the full sum assured on maturity. This is irrespective of the survival benefits and the amount paid under the same. This works just like any standard life insurance policy where the insured party gets a final assured sum at the end of the policy term. The money back policy is a good way to get more than just the maturity amount as in addition to it, the insured also keep receiving the survival benefits over the term of the policy. This is in addition to the bonus they receive at the end of the plan period.
If you are contemplating whether to go for an endowment plan, a money back policy or a term plan, it may be best for you to understand what you are looking for. If you only want a cover and are fine with not receiving any money back at the end of the period, then the term plans may be best for you. If you are looking for a plan that only pays at the end of the policy period and you do not need any money back during the term of the policy, then the endowment plans work well. If you need a cover, sum assured at the end of the policy and returns after every few years, then the money back plans are what you should put your money in.
Insurance Cover at the Same Time as Investment Returns
Though there are many other investment plans in the market that give returns at the end of the investment period or in some cases, over the lifetime of the policy, only a money back plan offers the triple advantage of maturity benefits, survival benefits and insurance cover. In fact, with these policies, the advantage is actually four-fold as you also receive a bonus that results in a significant increase in the overall payouts received from the money back plan. Most plans offer insurance benefits only and a limited return, while others like ULIP – Unit Linked Insurance Plansoffer a smaller cover and larger (and riskier) market linked returns. In between these two options, money back plans provide an ideal platform for the risk adverse investor to get an insurance cover and also receive significant guaranteed returns.
Bonus at Maturity Significantly Increases the Overall Payout
The revisionary bonus at the maturity of a money back policy helps to increase the payout from the policy by a significant amount. The reversionary bonus is declared every year on the sum assured. Most money back plans offer a simple reversionary bonus that is declared at the end of a year and gets added to the overall bonus that the insured receives at the end of the policy period. In addition to the simple bonus, there is another form of reversionary bonus called compound reversionary bonus wherein the bonus of the previous year is added to the sum assured and the bonus in the next year is given on this new increased sum assured amount.
Another form of bonus that may be declared and given by the company to the policyholder at the end of the policy period is the final additional bonus. This money is more in the form of a reward to the insured for sticking with the policy for such a long period. Both these types of bonuses help to increase the overall payout received by the policyholder of the money back plan.
Counters Vitality of Market-Linked Investments
The returns from the stock and commodities markets are highly volatile with even the best investments not being safe from the vagaries of the market. Any person who uses the stock market, whether directly buying the equities and commodities by themselves or relying on mutual funds, will be able to safeguard at least a part of their money using a money back plan or two.
A money back policy should be a part of the portfolio of any individual. It guards against loss of income from other investments due to the guaranteed nature of the returns. The insured party receives not only a definite return of the investment amount but also an insurance cover that ensures his nominees receive the sum assured to carry on with their lives in case the unfortunate happens. In addition, the survival benefit is the true plus point for money back plans. These benefit can be used to pay off expenses in various stages of life or even make investments. The money can be used to pay off loans, buy a house or real estate, invest in fixed deposits and so on.
Secure Investments with a Money Back Plan
A money back policy is a good way to plan secure investments. Since the returns are guaranteed, they make an ideal investment vehicle and ensure the investor gets his or her money back in a worry free manner. If used in tandem with stock market investments, like mutual funds, a money back policy can help reduce the risks of the investors overall portfolio. Moreover, the money back plan helps to guard against any risk to certain funds that are definitely needed in the future.
For instance, it is a fact that children after passing out from school need to go to a good college to get a shot at a secure career. College education is costly and can make quite a dent in the parents savings. In fact, the burden is more if the child opts for engineering, medicine or business administration, among others. A foreign education further increases this need for funds. All this can be taken care of easily if the parents opt for a money back policy when the child is still young. The survival benefit payments after every few years will take care of all these fund requirements without any significant impact on the parents savings, if at all.
Tax Savings with a Money Back Plan
All life insurance premium paid under a money back policy qualifies for tax deductions under section 80C of the Indian Income Tax Act, up to the specified limit, as long as the premium is less than 10% of the sum assured. This means that policyholders can reduce their tax liability by opting for a money back plan. Moreover, the maturity amount is exempt from tax deduction at source as long as the sum assured is more than five times the premium paid for the policies. People who are looking for safe guaranteed returns can use this tax benefit to further increase their money as they will now also save on tax in addition to getting the survival benefits, sum assured on maturity as well the bonus from the insurance company.
Benefits & Components of a Money Back Policy
A money back policy is a more complex life insurance policy than a term plan or a standard life insurance cover that pays the sum assured to the insured party on maturity. It provides certain amounts called survival benefits in addition to the sum assured and a bonus from the insurance company based on its performance. To understand a money back plan better, it makes sense to have a look at the various components that make up a life insurance policy and their various particulars.
These moneys are paid to the policyholder every few years over the lifetime of the policy. These payments start after some years from the start of the money back plan and continue until maturity. The insurance companies break-up these payments as a percentage of the sum assured and spread them across the policy period.
For instance, a 20 years policy may start the payments from the fifth year onwards and pay a certain part of the survival benefit every five years and the rest on maturity. This means that the policyholder will receive a survival benefit in the fifth, tenth and fifteenth years of the policy period and the rest on maturity at the end of 20 years.
Suppose the insurance company breaks up the survival benefit amount as 20% (say) of the sum assured for each payout year during the policy term and 40% (say) at maturity. Then the policyholder with a policy of Rs. 10 lakh (say) will receive Rs. 2 lakh each in the fifth, tenth and fifteenth years, and Rs. 4 lakh at the maturity of the policy at the twentieth year. The survival benefit does not accrue if the worst comes to pass and the insured does not survive the policy term.
The death benefits are what are given to the nominees of the insured in case of the death of the insured party. These include the sum assured of the money back policy and the bonus accrued on the policy since it was taken by the insured. This does not include the survival benefits as they are paid only if the insured is alive and well.
To illustrate with an example, suppose an insured party passes away in the 18th year after taking a policy, then the nominees will receive the sum assured and the bonus that would have been added on to the policy in the 18 years since it was taken. Any remaining survival benefits that may have been paid if the insured party had survived the policy term will not be paid in such cases.
This is a common term used to denote all amounts received by the insured party on the maturity of the money back plan. The amount includes three components:
The sum assured: This is the total cover chosen by the policyholder at the start of the policy or upgraded later during the term of the policy
The remaining survival benefits: These are the remaining amount of the survival benefits that are due to be paid to the policyholder
The bonus: This includes the reversionary bonus that the life insurance company declares at the end of each year and which is added for each of these years to arrive at the total sum. The bonus declared by the company generally depends on the performance of the company. Most companies also pay an additional terminal bonus
The sum assured is the amount for which the policy is taken. It is the amount that determines the premium the insured party will have to pay the money back policy. The sum assured is paid to the policyholder on the maturity of the policy or given to the nominees if the unfortunate happens and the insured does not survive the policy period
The bonus is the sum paid by the insurance company depending upon its performance to the insured party or their nominees. The most common forms of bonus are:
Reversionary Bonus: This bonus is declared at the end of each year by a life insurance company for its various policies and added on to the total sum payable to the insured party on the maturity of the policy or to his or her nominees in case the insured does not survive the term of the policy. The bonus is declared as a percentage of the sum assured and is generally of two types: simple revisionary bonus and compound revisionary bonus. In the former case, the bonus is not added to the sum assured and it does not increase the total sum assured. In the latter case, the bonus for each year is added to the sum assured. This has two consequences: firstly the sum assured increases, and secondly, the bonus figure for the succeeding years is more as the sum assured has increased from the previous years amount
Terminal Bonus: This bonus is also known as persistency bonus, and is paid at the end of the term of the money back plan or as a death benefit. It is generally paid to acknowledge the consistent payment of the premium by the insured over the term of the money back policy. Unlike reversionary bonus that has to be paid once declared, the terminal bonus is paid at the discretion of the insurance company, and is hence, not certain.
Common Optional Covers or Riders Available in a Money Back Policy
A money back plan has a large number of riders that the insured can easily add on their cover for a small additional premium. These riders help to increase the width of the insurance and guard against risks from various possible problems in life. Life insurance companies offer covers against various life and non-life risks including critical illnesses, accident and disability, hospital cash, etc.
Critical Illness: The critical illness rider guards against a host of critical illnesses that may arise during the life of the insured party. The rider enables the insured to get a guaranteed cash sum if they are diagnosed with any of the critical illnesses. The money may be used by the insured to pay off medical bills, renovate the house for critical illness patients, or for any other reason. Some common critical illnesses against which these riders provide protection include:
Coronary problems such as heart attacks and bypass surgery
Different types of cancer
Paralysis or strokes that may be of a temporary or permanent nature
Major organ transplants such as heart transplant, liver transplant, etc.
Renal / kidney failure
Accident or Disability Benefit Rider: This rider helps to tide over any expenses that may arise from an accident that results in a disability or even death. The type of injuries suffered generally determines the amount paid by the insurance company to the insured or nominees. The insurance company will pay a part of the sum assured for something like temporary or partial disability while it will pay the whole sum assured amount for total or permanent disability or if the worst comes to pass.
Waiver of Premium: The waiver of premium rider guards against loss of the insurance cover of the money back plan if the insured is unable to pay the premium for any reason. The rider is extremely helpful for the person who is unwell or is unable to pay the premium due to some reason.
Accelerated Sum Assured: This rider is helpful as it allows the policyholder to get the sum assured on being diagnosed with any of the specified critical illnesses. The primary policy is terminated when the insurance company pays the sum assured. This rider is helpful as it helps the insured to get the sum assured without having to keep paying the premium or having to wait for the whole term of the money back plan to get the insurance amount. The critical illnesses generally include the six covered above under the critical illness rider, viz.,
Coronary problems such as heart attacks and bypass surgery
Different types of cancer
Paralysis or strokes that may be of a temporary or permanent nature
Major organ transplants such as heart transplant, liver transplant, etc.
Renal / kidney failure
Term Rider: This is similar to a term life insurance policy and allows the insured to plan a term insurance payment to the nominees in the event of him or her not surviving the money back policy period. The insured or their nominees dont receive any amount if the policyholder survives the period of insurance, just like a term policy
Hospital Cash Benefit Rider: This rider helps the insured to get daily cash for any hospital expenses incurred during the term of the policy. Most of the insurance companies require that the insured be hospitalised for a minimum period (generally 48 days). It also offers benefits for surgeries, intensive care unit stay, etc. The insurance companies generally provide certain exclusions such as a waiting for 1 or 2 years for certain conditions to be diagnosed for the first time and so on.