Insurance Cover as well as Investment Returns A money back plan is ideal for risk averse individuals as it provides them with a life insurance cover in addition to significant guaranteed returns (investment returns). In fact a money back plan offers several advantages – maturity benefit, survival benefit, insurance cover and bonus, resulting in significant overall payouts. All other investment plans pale in comparison to the advantages of a money back plan. Most give returns only at the end of the policy tenure, while some give returns over the lifetime of the policy, but none of them match up to the advantages offered by money back plans. A money back plan provides an insurance cover, regular income, tax benefits and bonuses. Helps Plan Course of Life with Regular Payouts Every individual has a set of dreams and aspirations for important stages in life. These can be fulfilled only if one has required amount of money to make these dreams reality. A money back plan helps a person to chart the course of his or her life with a sum that is expected at regular intervals. With regular income through a money back plan, one can be sure that the dreams will see the light of the day without compromising ones day to day responsibilities. Whether it is paying for childs education, buying a car or any other important expense, it can be executed smoothly with the help of this policy. A money back plan helps meet intermittent liquidity requirements at important stages of life. Returns Begin to Accrue After Few Years Unlike most insurance products which pay benefits only at the time of maturity of the plan, a money back insurance plan starts giving returns after a few years of investment. In case of long term policies, an amount is paid every few years (survival benefit) and the remaining on maturity. This amount totals to significant amount and can be utilised towards short or long term purchases. The final payout given at the time of maturity with the maturity amount is larger than previous payouts. Survival benefit is paid only if the policyholder is alive. In case of passing away of the insured party, survival benefits do not accrue and the nominee/beneficiary only receive the sum assured plus any loyalty bonus amount. Policyholder Receives Full Sum Assured on Maturity Under a money back insurance plan, the policyholder receives the full sum assured amount at the time of maturity, irrespective of the survival benefits received earlier. A money back plan pays more than just the maturity amount. The insured receives periodic survival benefits over the term of the policy. And he/she stands a chance to receive a bonus by way of loyalty addition at the end of the plan period, part of the maturity benefit. Time Value of Money Higher with a Money Back Policy The principle of time value of money states that the value of money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This is why a money back plan scores over other kinds of life insurance plans. Survival benefits which are paid periodically over the policy tenure are worth more than if they were paid at the end of the policy term. Helps Counter Volatility Arising from Market Linked Investments The very nature of returns from market linked investments is unpredictable because of the volatile nature of markets. Money back plans help safeguard against losses arising from other forms of investment due to the guaranteed nature of its returns. It is advisable to have a money back plan as part of ones portfolio even if one relies heavily on market-linked instruments. In addition to definite returns, a money back plan offers a life insurance cover. The periodic survival benefit amount can be used to take care of expenses at different stages in life or even to make investments. Bonus at Maturity Increases Overall Payout The policyholder receives 2 kinds of bonuses under a money back plan, both of which significantly increase the overall payout. The first is a reversionary bonus, declared at the end of each year by the life insurance company for its policies and added to the total sum payable to the insured at maturity. The bonus is declared as a percentage of the sum assured and can be of 2 types – simple revisionary bonus and compound revisionary bonus. The compound revisionary bonus for each year is added to the sum assured. It increases the sum assured amount, therefore the bonus figure for succeeding years is more as the sum assured has increased from the previous years amount. The second bonus, the final additional bonus maybe given by the insurance company to the policyholder at the end of the policy tenure as a reward for loyalty. Tax Savings The premium paid under a money back life insurance policy is entitled for tax deductions under section 80C of the Income Tax Act, up to the specified limit, as long as the insurance premium is less than 10% of the sum assured. This way one can reduce his/her tax liability with the help of a money back plan. Also, the maturity amount is exempt from tax deduction at source, as long as the sum assured is more than 5 times the premium paid for the policy. Surrender Clause A money back policy usually has a built in clause which allows surrendering the policy before the end of the policy term. In such cases, the surrender value is calculated based on pre-defined formulae and paid by the insurance company to the policyholder. Policy Loan Some money back policies offer a loan facility i.e. a loan can be availed against the policy during the policy term, subject to certain terms and conditions and the production of satisfactory title.
