Last Updated on 07/01/2021 by Deepak Singla
A normal insurance policy requires you to pay your premiums until the end of tenure or until the policy is triggered due to the covered circumstances taking place. If there’s an emergency that puts a huge financial burden on you, taking out these funds before maturity can become next to impossible leaving you in a desperate state. These are your savings but you can’t use them when you need them the most and that can cause a loss of faith in the system.
Many people thus choose to not invest in life insurance policies but simply keep the money in their bank accounts where it’s simply gathering dust without providing any real income or returns.
What is money back policy?
Money back policy refers to the insurance policies that guarantee periodic payment of benefits within the policy tenure at fixed intervals to solve the issue of needing emergency funds making it easier for you to use your savings to facilitate your life. The amount that is paid within the tenure is called survival benefit and is a percentage of the total sum assured that is to be paid on the maturity of the policy.
What’s Different About it?
The numerous policies offered by insurance companies let you decide what percent of the sum assured you get as survival benefits and at what intervals. The policy pays the remaining sum assured on maturity also called maturity benefit along with other benefits accrued during the tenure of the policy. Money back policy also offers rider options to provide considerable increase in coverage and covers instances such as accidents, disability and illness to provide extended coverage. Policy buyers can also go for tenure rider along with the policy.
Multi-benefit policy
Money back policy is a traditional life insurance policy that provides assured returns along with added benefits and tax exemptions under Sec 80C of The Income Tax Act, 1961. It provides you with funds at regular intervals to account for unforeseen emergencies and circumstances which require a hefty financial input. The money back plans and life insurance policy are part and parcel of the same block and are always opted in together. If you invest in a money back policy you’re also opting in for the life insurance cover it provides.
Money back policies also offer add-on riders to help you further customize the coverage of your policy. Riders can be availed to cover for critical illness, accidents and even total or partial disability. Term riders are also available for increasing the scope of coverage for the insured.
Importance and benefits of Money back policy in India
Money back policy provides the best of both worlds in the form of a traditional insurance policy. It has the return period of a moderate risk low term investment while it ensures a fixed return after and over a period of time with minimal risk. It also provides life insurance coverage further adding in a layer of financial security so that no matter the circumstance your family gets the best possible monetary help.
Financial Stability
Money back policy covers your life and also provides an investment venture for you to help you earn that extra bit of income at fixed periods. If planned carefully, one can easily offset high expenses like education of children or buying a home or the marriage of your children through the survival benefits you receive making it so that you are always ready for the big changes in your life and the life of your children and are able to support your family in case of an unforeseen crisis where this survival benefit can mean a lot for the sustenance of your family.
Keeps you prepared for everything
Life is uncertain and it is impossible to predict when things will go south. Life may take a turn for worse unexpectedly and the need for a fail safe cannot be emphasized enough. You have to ensure that you have the financial means and options when the time comes and a savings plan like a money back policy is exactly what you need to ensure a financially stable future for your family.
Even in cases when the things are going well, the extra income you receive in the form of survival benefit can be of great use to help you manage your finances better or look for a new investment opportunity or meet your financial obligations without breaking a sweat. Since the policy is risk free, the returns are assured and can always be relied on to come through.
Investment for life
A money back plan also doubles as a life cover and provides you with all the benefits of a traditional life insurance plan. You don’t need to go for a separate life insurance plan after you have bought a money back plan. Money back policy does the work of a regular source of income, a reliable investment, life cover and even provides tax benefits, making it the ideal policy for anyone looking for a tension free investment with good returns and benefits.
Policy with benefits
The survival benefits along with the maturity benefits and the accrued bonuses received on the maturity of the policy provides you with a solid bed rock you can rely on. The common Indian is a conservative investor and rarely invests in something with high risks. Money back policies provide life cover and risk free returns and the exemption from tax under section 80C of the income tax act. A money back policy provides a plethora of benefits to the policy holders in addition to the assured sum. There are survival benefits, death benefits and maturity benefit.
- Survival benefits is the percentage of sum assured that is paid over the tenure of the policy. The percentage is based on your policy and the survival benefit is payable after a fixed period of time in the policy.
- Death benefits are provided to the nominee that is named in the policy after the death of the insured. The policy pays the full sum assured regardless of how much amount has been paid already in the form of survival benefits along with the bonuses that have accrued till the death of the insured.
- Maturity benefit is paid on the maturity of the policy to the policy holder. The maturity benefit consists of the sum assured to the insured and the bonus sum that has accrued over the tenure of the policy.
How a money back policy works?
To understand a money back policy we’ll have to go through an example.
- A bought a money back policy with an assured sum of 50 lakh for a term period of 25 years. The premium is paid regularly throughout the tenure and the survival benefit is 20% every 5 years. After the maturity of the plan 20% of the assured sum will be paid along with the accrued bonuses.
A will receive a sum of 10 lakh every 5 years as survival benefit till the 20th year. A would have already received 40 lakh by the time the policy reaches maturity. After maturity A will receive 10 lakh along with any and all bonuses accrued over the period of 25 years. This sum received along with the bonuses is what constitutes the maturity benefit.
In case A dies within the tenure of the policy, let’s say after the 23rd year, the nominee of the policy will receive the whole sum assured of 50 lakhs along with the benefits accrued over 23 years of the policy tenure even though A has already received 40 lakh in the form of survival benefit.
- B has bought a money back policy which offers an assured sum of 5 lakh. The tenure of the policy is 10 years with survival benefits to be paid at the rate of 20% every 2 years. On maturity, B will receive 20% of the sum assured along with the bonuses accrued during the tenure of the policy.
B will receive a sum of 1 lakh every 2 years as survival benefit, i.e. at the 2nd, 4th, 6th and the 8th year of the policy tenure for a total of 4 lakh. After the policy reaches maturity, B will receive the remaining 1 lakh along with accrued bonuses (maturity benefit).
If B dies during the policy tenure, the life insurance kicks in and provides life cover to the nominee of the policy. If B dies after 5 years the policy has come into effect, nominee of B will receive the complete sum assured of 5 lakh along with the bonuses accrued until the death of B. The survival benefits paid during the life time of B will not affect the sum assured even though B has already received 2 lakh as survival benefit.
Different insurance companies offer different policy tenures, survival benefit rates and maturity age. Every policy has a different minimum sum assured on the maturity of the policy and one must look for a policy which falls within their requirements and needs.
Things to know before buying life insurance policies
SBI Life Money back policies
SBI Life is a joint venture by SBI and BNP Paribas Cardiff that provides life insurance and other insurance services in the country. SBI life is one of the biggest insurers in the country and has come up 3 money back policies to help customers choose a policy that suits their needs. These are traditional policies that prioritize assured returns and risk free investments.
The three policies are:
- Smart Money Back Gold
- Smart Money Planner
- Smart Income Protect
Smart Money Back Gold:
Smart money back gold is an individual non-linked profit endowment assurance money back plan.
- The plan offers life cover irrespective of how much survival benefits have been paid.
- On maturity the total benefits received will be 110% of the sum assured.
- There are 4 plan options and different policy tenures available to choose from based on your situation.
- You can decide when you want the survival benefits to be paid. The plan is flexible and lets you decide how you want to structure your survival benefit.
- There are tax rebates available on large assured sums.
- There are 4 rider options that provide comprehensive coverage.
- Preferred term rider
- Accidental death benefit rider
- Accidental total and permanent disability benefit rider
- Criti care 13 non-linked rider
Smart Money Planner:
Smart money planner is an individual non-linked profit endowment assurance money back plan.
- You will get life cover through the tenure of the policy
- The sum assured will be paid in equal instalments throughout the benefit payment period.
- 4 plan options to choose from
- You have limited premium payment and single premium payment options.
- Tax benefits available
Smart Income Protect:
Smart Income Protect is a non-linked participating life insurance plan which offers life cover and cash inflow over a period of 15 years.
- Life cover throughout the policy tenure
- Reversionary bonus + Terminal bonus paid as lump sum on maturity
- 11% of the basic assured sum paid annually over a period of 15 years after maturity
- Policy terms of 7, 12 and 15 years available
- 4 rider options available
- Preferred term rider
- Accidental death benefit rider
- Accidental total and permanent disability benefit rider
- Criti care 13 non-linked rider
Conclusion
The Unique Selling Point of a money back policy is that if the insured dies within the tenure of the policy, the sum assured is paid in whole irrespective of the percent of survival benefits that have already been paid. The importance of money is felt the most in the times of need and a money back policy ensures that such desperation is not to be felt by you or your dependants. The periodic liquidation of your investment along with the life cover and maturity benefits make it an attractive policy for the Indian investors.
Image courtesy: onlinepolicy.in
