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Pros & Cons of Money Back Insurance Policy

By Prabhat Singh - Apr 28,2022
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A money back insurance policy is a life insurance policy that helps you secure your life while aiding you in building some wealth out of it. The money back plan allows the insured to receive some proportionate amount of the total sum insured in a few regular intervals and the remaining amount during maturity. The money received in regular intervals helps the insured build some wealth or use the amount for any emergency. 

In simpler words, unlike a standard life insurance policy, which provides you with the total amount insured in a lump sum after the policy matures, the money back insurance policy gives you returns during the tenor of the policy in equal amounts and regular intervals.

Here are a few pointers stating the benefits of a money back insurance policy 

Survival Benefits

The benefits given to every insured surviving individual; at regular intervals throughout the policy tenor. 

For instance, Mohit has chosen a money back policy with a sum assured of 10 lakhs for 20 years. He will have to pay the premium for 20 years, and he will keep receiving the return at regular intervals. After the 5th, 10th, and 15th years of the policy tenor, he will get 15% of the sum insured. As a result, before the policy matures, Mohit will get 45 per cent of the total sum assured. At maturity, the remaining 55% will be paid to the insured.

Maturity Benefits

The benefits paid to the insured at maturity. These benefits include: 

    1. Sum Assured – The remaining amount of the total sum assured after providing the insured with the returns over the period of the policy 
    2. Bonus – The extra money paid to the insured by the insurer at maturity. It mainly depends on the performance of the company.

Death Benefits

The benefit provided to the nominee after the policyholder dies is known as death benefits.

It includes the total sum assured and the bonus accumulated on the policy. However, no survival benefits are given to the nominee because only the policyholder is entitled to earn survival benefits. To understand it better, consider Mr. Bhaskar, a money back insurance policyholder who dies in the 16th year of the policy. Hence, the nominee, and his wife will get the total sum assured along with all the bonus accumulated over 16 years. 

A money back insurance policy is one of the famous insurance plans in India. With guaranteed returns and amazing benefits, a money back plan is surely one of the top choices of individuals.

Here are some of the pros of a money back insurance policy: 

  1. Guaranteed Amount – If the policyholder dies, the nominee (usually a family member) will receive the total sum assured in a lump sum from the insurer. The money can then be used to pay off debts, tuition, or any other big expenses. 
  2. Possessing Low Risk – Market Securities like stocks, bonds, mutual funds, equities, and other investments are usually market dependent. Therefore, they have a substantial risk involved, whereas a money back insurance policy guarantees the return to the insured in regular intervals even before the policy matures.
  3. Tax Benefits – You can avail of the tax deduction for the premium paid for a money back plan up to ₹ 1,50,000 under section 80C. Additionally, section 10(10)D exempts the maturity benefits from taxation. 

All the benefits and pros make the money back plan a sought-after investment. However, there are some disadvantages as well.

Read on to find out the cons of a money back insurance policy. 

  1. Expensive Premiums – A money back insurance plan deals with both surviving as well as death benefits. Therefore, the risk involved for the insurance provider is high. Hence, the premiums are higher than the usual life insurance policies. 
  2. Lower Rate of Return – The rate of return for the money back plan is lower than other securities like stocks, bonds, mutual funds, equities, etc. Hence, if you want a higher rate of return, a money back insurance plan is not a viable option.
  3. Complicated Accounting – Depending on the length of the offer, you may need to update cost sheets and revenue papers from previous months, which might compromise your ability to manage your money appropriately.

Money back insurance works for an investor looking for assured returns with the potential for growth at times in their lives to cover large expenses that may come in the future. However, there are a few things (mentioned above) to consider before deciding on buying a money back plan.

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