What is a Money Back Policy?

A life insurance policy offers life cover to the person who purchases it i.e. a person pays certain amounts of money consistently towards a policy so that his/her family member, known as the beneficiary, is given the sum of money promised when the policyholder expires.

A money back plan is a type of life insurance plan that allows the policyholder to receive payouts at regular intervals during the policy term as part of the survival benefit. Insurance companies offer a survival benefit as a reward for survival. While this benefit is availed at the end of the policy term in most life insurance policy types, the money back policy has the unique feature of providing regular payouts during the policy tenure, to the policyholder.

A money back policy iinstallmentsent plan that gives you some part of the maturity benefit in regular instalments before the scheme period ends. The policyholder will receive regular payouts as long as he or she is alive, instead of a single lump sum at the end of the policy period or at death. However, once the death benefit payout is done or the maturity is reached, no further payments will be made through the policy. It is an investment-cum-insurance scheme which also has the advantage of liquidity after a few years. Money back policy is known as an Anticipated Endowment Plan in insurance parlance.

Best Money Back Policies in India:

Some of the most popular money back policies in India are listed in the table below:

• SBI Life – Smart Money Back Gold: This is a participating plan that gives cashback at fixed intervals during the policy period. The period at which you get money back depends on the tenure of the policy. You also get accrued bonuses and the remaining sum assured at the end of the scheme or as death benefit. The minimum premium amount is Rs.400.
• HDFC Life Super Income Plan: This is a participating, non-linked, limited pay scheme. After the premium payment period is over, cashback is given to the insured person for the remaining policy tenure. So you can get regular profits every year for 8 to 15 years after you stop paying premiums. The money back receipts cease in case a death benefit is claimed.
• LIC Money Back Plan 20 Years: This is a participating unlinked policy that gives money back every 5 years until death of the policyholder or maturity of the policy. An amount equal to 20% of the basic sum assured is given as money back, while at maturity you get the remaining sum assured and bonuses that have accumulated on the scheme.
• Reliance Nippon Life Super Money Back Plan: This is a non-participating, non-linked plan that gives you cashback every 5 years until the end of the policy tenure. You need to pay premium only for half of your chosen scheme duration. Your total savings increase every year through loyalty additions, and the policy also gives a maturity bonus as survival benefit at the end of the policy term.
• Aviva Dhan Samruddhi: This is a non-participating, unlinked insurance scheme with guaranteed money back every 5 years until the policy matures. You can get up to 125% of the annualised premium as money back through the payouts. You get guaranteed bonuses of 7% to 9% of the annualised premium every year.
• Birla Sun Life Insurance Bachat Moneyback Plan: This is a non-participating life insurance policy that gives you insurance and money back with premiums as low as Rs.400 per month. The money back and maturity benefits depend on your entry age, chosen premium and tenure. You will get 20% of the base premiums paid per month as cashback every 5 years until the end of policy period, apart from the guaranteed maturity benefits or death benefits.
• ICICI Prudential Cash Advantage: This is a participating limited pay plan which gives you guaranteed cashback from the time you stop paying premiums. For a 10-year policy, by paying an annual premium of Rs.30,000 for as few as 5 years, you can get Rs.74,451 as maturity benefit in addition to getting 12% of the maturity benefit as cashback every year from the 6th year onwards.
• Max Life Monthly Income Advantage Plan: This is a non-linked, participating plan that provides guaranteed monthly income following 10 years of the premium payment term. Policyholders can decide the premium amount they wish to invest based on their specific requirements. In addition to the savings benefit, policyholders can also get life coverage for up to 25 years.

Why you need to buy a Money Back Policy?

Money back policy is good for people who want to make an insurance-based investment but also want liquidity. With a money back scheme, you not only get life protection but also get a regular income from the profits you make through the policy investments. If you are a young individual, the policy will help you at regular intervals for various financial needs – such as down payments for a new vehicle or home, medical needs of self, parents or children, educational needs of self, siblings, spouse or children, prepayments of your loans, funding the wedding of yourself, siblings or children, etc. Money back policies being endowment policies, the risk factor is low and therefore you need not worry that your investment will not yield good results. Almost all money back policies gives guaranteed and fixed returns, which will allow you to plan your finances well.

How does Money Back Policy work?

When you buy a money back policy, you will be told for how long you need to pay the premiums. Some policies require you to pay premiums throughout the tenure, while in some policies you need to pay for a limited number of years only. This premium will be invested in secure avenues, and a small part of the amount goes into administrative fees and taxes. Once you start paying the premium, you will receive a certain percentage of the sum assured at regular intervals. This may happen while you are paying the premiums, or after you’ve stopped paying the premiums. The policy document will also tell you when you will start getting the money back payouts. Some policies give you cashback every 5 years, while some give you every year towards the last few years. You will continue receiving the money back until the scheme reaches maturity or until the policyholder dies, whichever is earlier.

If the policyholder meets his maker before the scheme’s maturity, the nominee/s will get the sum assured and death benefits as per the policy terms. Even if money back payouts have been made before the death of the insured person, it will not affect the sum guaranteed as death benefit. You can add riders to the money back plans to increase your protection levels and get higher death or maturity benefits. You’ll have to pay a slightly higher premium if you are adding riders to the policy. Maturity benefits, along with sum assured and accrued bonuses, are given to the policyholder if he or she outlives the plan.

Features and Benefits of a Money Back Policy:

A money back policy offers a secure life cover to the life assured as well as guaranteed returns on survival. This is the best life insurance policy type for anyone who wants to financially aid his/her family in case of his/her unfortunate death and also make sure he/she has another source of income that would be beneficial in the long run.

• Death Benefit:On the death of the policyholder, the nominee chosen by the policyholder will receive the death benefit. The death benefit amount is equal to the sum assured decided by the policyholder at the time of purchase of the policy. Additional bonuses accrued, if any, will also be provided to the nominee. The death benefit of a money back policy is a guaranteed income i.e. the family members or the nominee will definitely receive the amount promised from the insurer. A few life insurance plans like endowment policies do not have this feature.
• Maturity Benefit:If the policyholder survives the policy term, he/she is provided the maturity benefit. The maturity benefit is generally equal to a percentage of the sum assured amount chosen by the policyholder in the beginning. This amount may or may not have been upgraded during the tenure. If upgraded, the upgraded sum assured will be provided. Along with the sum assured, any survival benefits due are also given away at once. Also, any bonuses accumulated during the tenure of the policy will be included in the maturity benefit as well.
• Survival Benefit:The survival benefit is paid during the policy term as long as the policyholder is alive and well. The regular payouts of this benefit are spread out throughout the term and are usually a fixed percentage of the sum assured as decided by the policyholder. Typically, the payouts don’t start from the year of purchase of the policy but start after a few years. The payouts are regarded a reward given by the insurer to the insured for remaining hale and healthy. The instalments can be utilised for expenditures at major milestones of the policyholder’s life like a wedding, children’s education funds, down payment for a new house, etc. However, if the policyholder passes away during the policy term, the survival benefit payouts will cease, the death benefit and bonuses, if any, will be paid out and the policy will be terminated.
• Bonuses:Most money back policies offer something called the reversionary bonus. A reversionary bonus is a bonus declared by the insurance company at the end of each year. The amount is a certain percentage of the sum assured. The reversionary bonus is either simple or compounded. While the simple reversionary bonus is not added to the sum assured each year, the compound reversionary bonus is. The added benefit of the compound bonus is that the bonus in the following year is calculated based on the new sum assured amount, so the bonus increases over time. Money back policies also offer a terminal bonus which is an acknowledgment for on-time and consistent payment of premiums by the policyholder. It is paid with the maturity benefit or the death benefit and is not certain since it is at the discretion of the insurance company.
• Riders:Life insurance companies offer certain riders with the life insurance policy to enhance the basic policy type. The add-on riders charge an extra premium and cover the policyholder against various risk types. Money back policies offer critical illness riders, accident/disability rider, term rider, hospital cash rider, waiver of premium rider, or accelerated sum assured rider. Each of the riders are designed to lend a hand to the policyholder in times of need.
• Tax benefits:Tax benefits can be enjoyed by policyholders who pay premiums towards the money back policy. The benefits are defined under section 80C of the Income Tax Act, 1961. Also, the survival benefit, maturity benefit, and bonuses are tax-free.

Money back policies are the best policies for someone who is looking for optimum life cover and assured returns.

Bonuses in a Money Back Policy

• Reversionary Bonus: The reversionary bonus is declared by the insurance firm at the end of a policy year and is added to the amount payable at maturity of the policy or will be paid along with the death benefit. The reversionary bonus is calculated as a certain percentage of the base sum assured. There are two kinds of reversionary bonuses – simple reversionary bonus and the compound reversionary bonus.
• Terminal Bonus: The terminal bonus or the final additional bonus is only paid to the policyholder at the maturity of the policy or upon the policyholder’s death. This is a one-time bonus payment and is offered as a reward to policyholders who keep their policies active for the duration of the policy term.

How to choose a Money Back Policy?

Here are a few points you need to keep in mind before you buy a money back life insurance policy:

• Money back amount: Money back policy allows you to manage your money quite well if you plan the whole process well. You could buy a scheme in such a way that the money back payouts are timed towards important milestones in your life where you might need a large amount of money – such as your children’s education or wedding, down payment for a vehicle or house, etc. Consider your future financial needs – medical, educational, lifestyle –and choose the sum assured/money back benefits accordingly.
• Money back frequency: The number of times you receive money back from an anticipated endowment policy differs from scheme to scheme and insurer to insurer. Some plans give money back every 5 years, while some give money back every year. Choose a frequency that is aligned with your financial goals.
• Steady income: You need to ensure that your income is stable enough to cover regular premium payments for the stipulated period of time. If your income is varying, you may not be able to pay premiums regularly and the policy may lapse. You may end up losing the scheme and its benefits, or at least you will end up paying late fees and penalty.
• Tax savings: Most money back policies are eligible for tax deductions under Section 80C (for premium payments) and Section 10 (10D) for death and maturity benefits. Under Section 10 (10D), if your policy is bought before 31st March, 2012, and the annual premium paid is more than 20% of the basic sum assured, then the maturity or death benefits would be taxable. But if the plan is bought after 1st April, 2012, if your premium amount is more than 10% of the basic sum assured, then the payout will be taxable. So if your sum assured is Rs.10 lakh, then your annual premium cannot be more than Rs.1 lakh if you want to save tax. You’ll have to decide your tenure and premium amount accordingly.
• Death benefits: Death benefits are lower in a money back scheme as compared to a term insurance policy, in proportion to the premium you pay. So if your main purpose in getting a life insurance scheme is to put a price to your life for the sake of your family, then money back policy may not be best for you. However, this does not mean that money back policies cannot give you good death cover. The sum assured paid at death does not discount the money already paid back to you during the course of the policy term. If funds permit, you could take a money back scheme with a high premium amount that will cover your life adequately while providing you good cashback as well.
• Maturity benefits: Maturity benefits are lower in a money back policy than in a pure endowment plan. This is because more than half of the survival benefits is given to you in staggered payments during the scheme tenure. So if you want your insurance-investment policy to give you a lump sum at maturity for a large financial necessity you foresee, then you should think twice before choosing a money back scheme.
• Premium amount: The premium for money back policies is divided into at least 2 parts – insurance premium and investment amount. So the amount of premium you need to pay for a certain life cover under money back policy may be higher than the premium required for a term insurance scheme.
• Choosing the right plan: You should choose a plan according to your age, income, how much you can save in a month/year, and your future financial goals. The older you are, the higher your premium and future needs might be.

How to check the status of a Money Back Policy

Most insurance providers give policyholders the option of checking the status of their policy and viewing key information about their policy through both online and offline channels. Listed below are the various channels through which you can check the status of your insurance policy:

• Customer Portal: If you wish to check your policy status online, you can log in to the customer portal on the insurer’s website. In case you are a first-time user, you will have to complete your registration and add your policy, on the insurer’s website. Post this, you will able to view all information about your policy directly through the portal, after logging in.
• Customer Care: You can also contact the insurer through their toll-free number, email ID, or write to them, if you have any queries about your policy or policy status.
• Insurer’s Branch: You can also walk into the nearest branch of the insurer and directly speak to an insurance agent or representative about your policy queries.
• Mobile Application: Certain insurance providers also have mobile applications through which you can check the status of your insurance policy in a hassle-free manner.

Money Back Policy vs Term Insurance – Which should you choose

Money back policies and term insurance policies are two of the most popular types of life insurance products. Listed below are a few differences and similarities between these two types of products.

1. Sum Assured: The key benefit of term insurance plans is that they offer a high sum assured to prospective policy buyers. On the other hand, if you wish to opt for a high sum assured when you purchase a money back policy, you will also have to pay a hefty premium amount.
2. Premiums: When compared to other life insurance products, term insurance plans offer a relatively lower premium rate, since they don’t have a cash value attached to them. In comparison, since money back policies have a cash value, the premium payable is likely to be significantly higher than that of a term insurance plan.
3. Payouts: Under a term insurance plan, the insurer is liable to pay a death benefit in the event of the policyholder’s death. However, in case the policyholder survives till completion of the policy tenure, no payout will be provided. With regard to money back policies, policyholders receive frequent payouts, during certain pre-defined policy anniversaries, in the form of survival benefits. In addition, at maturity of the policy, the policyholder is also entitled to receive the maturity sum assured. In the event of the policyholder’s death, the nominee is paid out a death benefit. Thus, money-back plans can be instrumental in helping you meet key financial milestones in your life.
4. Policy Loan: Since term insurance plans do not acquire a cash value, policyholders cannot avail a loan against these plans. On the other hand, money back policies offer policyholders the option to take a loan against their policy. In most cases, policyholders will only be able to take a loan against their policy after the policy has acquired a surrender value.
5. Riders: For both types of plans, policy buyers are given the option to enhance their coverage by purchasing riders and add-ons offered by the insurer. However, the exact number of riders offered for term insurance plans and money back plans will vary from insurer to insurer and plan to plan. Thus, you will need to assess your needs and purchase riders accordingly.
6. Tax Benefits: Both term insurance and money-back plans offer tax benefits to the policyholder. Thus, customers can avail tax rebates for both premiums paid during a financial year and benefits received, under Section 80C and Section 10(10D) of the Income Tax Act, 1961.

Any one of these plans – a term insurance plan or a money back plan – could be the right option for you based on your coverage needs, financial goals, and premium payment ability. Thus, make sure to consider your needs and the needs of your dependents, research various policies available in the market, compare premium quotes offered by insurers, and opt for a policy that provides coverage as per your needs.

Surrender Value of a Money Back Plan

A life insurance policy is a long-term contract between the policyholder and the insurance provider. Thus, it is recommended that policyholders continue to pay their premiums and enjoy the coverage offered by the policy. However, under certain circumstances, policyholders might decide to discontinue or surrender their policy.

In most cases, the insurer will only pay the surrender value to the policyholder if the policy has acquired a surrender value. For your policy to acquire a surrender value, you are required to pay the due premium amounts, within the completion of the grace period, for a period of 2 – 3 policy years. Post surrendering the policy, the insurer will pay you the guaranteed surrender value or the special surrender value, based on whichever is the higher sum.

In most cases, if survival benefits have already been paid to the policyholder during the policy tenure, this sum of money will be reduced from the surrender benefit that is payable to the policyholder. The exact calculation of the guaranteed surrender value and the special surrender value can be found in the policy brochure. The policy cover will cease after the surrender benefit is paid to the policyholder.

Eligibility Criteria for Money Back Policy:

Money back policies by various insurance companies have different eligibility parameters. The common criteria needed to buy a policy are:

• Minimum age of entry (0 to 60 years)
• Maximum age at maturity (18 years to 80 years)
• Sufficient income to pay the premiums

Some insurance companies may also require you to declare your existing diseases.

Documents Required:

Some of the documents that are usually asked by insurance companies are listed below:

• ID Proof: A valid photo identity card issued by the government or a company, such as Passport, PAN Card, Driving Licence, Aadhaar, Voter’s Identity Card, MNREGA Job Card, company ID card, etc.
• Residence proof: Apart from the above ID cards that include your permanent address, you might be asked for rental agreement (if you’re staying in a rented house), latest utility bills, Property Tax or Municipal Tax receipt, bank account or Post Office savings account statement or passbook, and other documents issued by the government of India.
• Age proof: Any government ID card or document, or a school leaving certificate that has your date of birth.
• Income proof: Latest payslips or certificate of employment.
• Your latest photographs.

Money Back Policy Premium Calculator:

A premium calculator tells you how much premium you would have to pay as per the policy and sum assured chosen by you. This is a very helpful financial tool that will allow you to plan your finances well and decide how much you need to keep aside every month or quarter or year. Before you use the calculator, you need to know the policy you want and the sum assured you expect. The tool will need you to input your age, the duration you want for the scheme, and your gender. You can also add the available riders to the calculator for accurate calculations.

Let us use the SBI Money Back Policy Premium Calculator and check what premium would be needed for the following parameters:

Policy tenure: 20 years

Sum assured: Rs.10 lakh

Age: 30 years

Result of premium including taxes: Monthly– Rs.5,607

Quarterly – Rs.17,147

Half-yearly – Rs.33,633

Annual – Rs.65,945

Money Back Policy Riders:

Riders are additional mini-policies that can be added to an insurance scheme. You will have to pay a little more amount as premium to add the riders. Each insurance company has its own list of riders that can be added to a money back policy. The riders that are commonly offered include:

• Term insurance rider: This rider can be added if a person wants a higher death benefit payment than what the money back policy gives.
• Accidental death benefit rider: In case the policyholder passes away in an accident, this rider will provide the nominee with a lump sum amount as death benefit. This amount is in addition to the sum promised as death benefit for the main policy itself.
• Total permanent disability benefit rider: This rider covers a person if they become completely disabled and unable to make money for the family, due to an accident. The rider will ensure that you get some part of the sum assured as a lump sum or cover the treatment, or disburse the sum assured and bonuses in instalments in order to allow the person to have a fixed income even if they are unemployed due to the disability.
• Critical illness benefit rider: With this rider, if the policyholder contracts a severe disease such as critical heart ailments, cancer, multiple sclerosis, kidney failure, paralysis, or Alzheimer’s disease, then they will get a lump sum in order to help pay for the treatments. Some insurance companies will forgo future premiums if the insured person is diagnosed with a critical illness.
• Major surgical benefit rider: This rider will provide a lump sum if the insured person has to undergo a major operation such as organ transplant or open heart surgery.
• Family income benefit rider: If the policyholder dies or becomes permanently disabled due to an accident or major illness, then this rider will provide the family or nominee with a monthly income until policy reaches maturity. Some insurance companies also waive off premiums in such cases.
• Premium waiver benefit rider: This rider can be added if you want the insurer to forgo the premium payments if the policyholder gets a severe disease or becomes disabled due to an accident. You will continue receiving the benefits of the policy until maturity even if you are not paying the premiums any more.

Are Money Back Policies for you?

Money back policies are great for you under the following circumstances:

• You do not favour risk and want to make investments that are safe and guarantees benefits.
• You want to save money while getting a life insurance cover at the same time.
• You have a financial goal for your future and might need some extra funds from time to time.
• You are a disciplined, savings-oriented individual.
• You have a secure income that allows you to put aside some money regularly for paying the premium amounts.