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Money-back policies in Life Insurance

TeamAckoSept 26, 2024

Everyone needs a financial backup plan owing to the risks and unplanned future ahead. That's where the discussion of life insurance comes in. So, which type of life insurance do you need? Money-back policies might be a one-size-fits-all solution.

Notably, money-back policies in life insurance policy offer coverage for policyholders and their loved ones. The following are the pros and cons of such plans

Money-back

Contents

Pros	Cons
Guaranteed Return Policyholders get regular instalments (which is the sum assured).	Lower Returns One portion of its premium is used to pay for survival benefits. So, it offers lower returns.
Survival Benefits Get a percentage of the sum assured and paid in instalments over the term.	May not meet financial goals Regardless of whether the cost of living increases or not, the amount might not meet fiscal objectives.
Death/Maturity Benefits Receive the remainder of the sum assured when it expires or matures. Alternatively, when someone expires when the policy is active, the beneficiary gets the sum assured.	Limited coverage Does not offer a higher sum assured.
Tax Benefits A policyholder can receive tax benefits under Sec 80C for policy premium payments.

What are Money-Back Policies in Life Insurance?

A Money-back Policy offers you and your loved ones coverage and savings components. When you pay your premiums for a certain term and unexpectedly pass away while your policy is active, your beneficiaries will get the death benefit payout. If you survive the term of your Life Insurance Policy, you're eligible to receive an amount of your sum assured regularly. Many prefer this plan because they can save money and receive Life Insurance coverage simultaneously. It is also a source of regular income for you for the entirety of your Life Insurance policy.

Let's look at a simple example: Suppose Tara has received Rs. 2.5 lakhs after five years of duration throughout the term.

So, she receives this percentage in the policy's fifth, tenth, fifteenth, and twentieth years. Hence, Tara has earned Rs.10 lakhs by the end of the twentieth year. If Tara decides to terminate the policy after maturity, she can pay an additional Rs. 2 lakhs, and the policy will end.

In the unfortunate event of Tara's death before the policy matures, her nominee will receive Rs. 10 lakhs and any bonuses earned, regardless of the amount she has already received as survival benefits. For example, even if she has received Rs. 6 lakhs as survival benefits, the nominee will still receive Rs. 10 lakhs in addition to any bonuses.

How Do Money-Back Policies in Life Insurance Work?

These plans work such that the policyholder gets regular payouts at specific intervals. In case of unfortunate demise, it also offers death benefits to the beneficiary. The cost of this plan is comparatively more expensive than the cost of a Term Insurance Policy. The premiums are higher because a Money-back Policy assures you, or your loved ones, a payout whether you pass away suddenly or outlive your policy. Here's how a money-back plan works:

Buying a Money-back Policy When you buy this plan, you need to determine the life insurance coverage amount. Be sure to understand the terms of your policy because every insurance company has different rules and regulations.

Premium payments Premium payments can be made yearly or monthly and will have to be made until the end of the policy.

Death benefits If you suddenly pass away while your policy is active, your insurance company will give your beneficiaries this amount as the death benefit.

Receiving Premium as Money-back If you outlive your Money-back Policy, your insurance company will pay you a predetermined amount. It is usually a portion of your total paid premiums and will be paid regularly until your policy expires. In a nutshell, money-back policies offer these benefits:

Death benefit	Maturity benefit	Premium payments
Survival benefit	Guaranteed returns	Bonuses
Tax benefit

Key Features of a Money-back Policy

Some appealing features of this plan include:

Guaranteed Returns

With a money-back policy, you're assured of guaranteed returns on your premium payments. These guaranteed returns will be paid to you in regular instalments over the course of your policy. The amount you receive regularly will be a portion of your sum assured, which will be paid in whole when your policy finishes.

Regular payouts

One of the main features of money-back policies is that they provide regular payouts to the policyholder during the policy term. These payouts can be a percentage of the sum assured or a fixed amount, depending on the policy terms and conditions.

Survival benefit

Money-back policies come with a survival benefit, which is paid out to the policyholder if he/she survives the policy term. This benefit is usually a percentage of the sum assured and is paid out in instalments over the policy term.

Maturity Benefit

You will receive the remainder of your sum assured when your policy matures or expires. Your payouts before the maturity benefit will be subtracted from your maturity benefit.

Death Benefit

If you pass away while your Money-back Policy is active, your beneficiary or heirs will receive your sum assured. Whether any payouts were made to you or not, this death benefit will be paid.

Tax Benefits

A Money-back Policy provides tax benefits under Section 80C of the Indian Income Tax Act, 1961, which states that you can get a tax deduction on your policy premiums payments. The premiums are tax-free only under the Old Tax Regime. Payouts above Rs. 5 lakhs will be taxed under the New Tax Regime for Money-back policies purchased after April 2023.

Surrender Value

If you want to terminate your Money-back Policy for any reason, you will need to surrender your policy. You are entitled to a Surrender Value, a percentage of your premiums. The Surrender Value is calculated by subtracting fees or charges that your insurance company has imposed.

Loan Facility

A Money-back Policy gives you the option to utilise loan facilities. You can borrow money against your surrender value at any time.

Premium payment term

Unlike other Life Insurance Policies, a Money-back Policy offers you a longer time to make your premium payments. Although these terms may vary by insurance companies, many offer payment terms for 20 years or more.

Flexibility

These plans offer a high degree of flexibility to the policyholder. They can choose the policy term, premium payment term, and payout frequency according to their needs and preferences.

Life Insurance coverage

The best part of a Money-back Policy is that you get savings and life insurance coverage for the duration of your policy. If you pass away while your policy is active, your beneficiaries will get the sum assured.

Liquidity

One of the key benefits of a money-back policy is that you can enjoy the liquidity and savings it offers you. You could use the amount towards your expenses, education fees, business financing, and debt clearing.

Money-Back Policies in Life Insurance vs ACKO Life Flexi Term Plan

Money-back policies offer periodic payout frequency as survival and death benefits if the policyholder dies. However, ACKO Insurance introduces the ACKO Life Flexi Term Plan with an option to customise your coverage at affordable rates.

Parameters to Evaluate	Money-Back Policies in Life Insurance	ACKO Life Flexi Term Plan
Coverage Duration	20 years on an average	Customise coverage throughout the policy period
Premiums	Amount predetermined in the policy	Lower Premium Rates
Cash Value	Limited coverage	No cash value or investment component
Flexibility	Flexible in choosing the amount of premium	More flexible to modify the life insurance coverage amount
Costs	Costlier	Highly affordable with the flexibility to change the coverage and duration
Payout	Payment is made after every five years as survival benefits The nominee receives the death benefit for policyholders who die before the term ends.	Only pays if death occurs during a set term period.
Good For	People who want to receive periodic payouts	People seeking comprehensive coverage at affordable premiums
Tax Benefits	Tax-free premiums Tax deduction on the policy premiums' payouts	Premium and payout tax-free

ACKO Life Flexi Term Plan

ACKO Life Flexi Term Plan is an excellent term insurance policy with an unparalleled ability to adapt to changing circumstances of life. The following are the key benefits:

Wallet-Friendly Premiums	Convenient Claim Process	Will Creation Solution
Excellent Payout Options	Flexible Sum Assured	Flexible Policy Tenure

At ACKO, policyholders can initiate claims online with reduced paperwork. Swift payouts and seamless processes make us stand out from the crowd.

Determine Which Policy Works For You

While selecting a money-back plan and ACKO's flexible term plan, you may consider your money and requirements (alongside the timeline):

Different Scenarios	Recommended Policy
Need more customised options for insurance plans	ACKO Life Flexi Term Plan
Need an affordable option.	ACKO Life Flexi Term Plan
Need periodic payouts (at least after every five-year interval)	Money-Back Policies
Want financial security for your family after your death	Money-Back Policies
Inventing a policy for temporary coverage	ACKO Life Flexi Term Plan
Flexible policy tenure	ACKO Life Flexi Term Plan
Want survival benefits after the term ends?	Money-Back Policies
Flexible sum assured and excellent payouts	ACKO Life Flexi Term Plan

How to Buy Money-Back Policies in Life Insurance

Investing in a money-back plan offers exciting financial growth and security. However, it is critical that you need to determine these aspects:

Evaluate the death benefit or survival benefit amount depending on your goals and income

Survey the insurers and calculate the premium costs

Completing your policy application after presenting your health reports and income proof (if required)

Attach your financial documentation to verify your income and other details

Review the policy terms, such as riders and dividends (as loan interest rates and other exclusions), before choosing the policy

Submit your payments annually or monthly (based on your selected option)

The best money-back policies come with these additional riders:

Critical Illness Rider: Offers a lump sum amount for certain critical diseases

Accident/Disability Benefit Rider: Additional payouts if accidental death occurs

Choosing the Right Money-Back Policies in Life Insurance

Here are the key aspects that help you choose a money-back policy:

Consult a Reputable Insurance or Insurance Company: Discuss your requirements with a reputable insurer.

Premium rates per your budget: Compare different premium rates from providers and choose one accordingly.

Assess the Growth Rate: Examine various parameters to assess the cash value.

Review the Company's Dividend Payouts: While considering a participating policy, you must check the insurer's history of dividend payouts.

Policy loan rates and flexibility with withdrawal: Look for a policy with flexible withdrawal and choose the best policy loan rate.

Determining the insurers depending on the above criteria helps you choose the best money-back plan.

Documents required to buy Money-Back policies

Here are a few documents you may need to furnish for your Money-back Policy, but check with your insurance company for more details.

Proof of Income

Address proof

ID Proof

Age Proof

Medical history

Eligibility Criteria to Buy Money-back Plans

The following are a few of the eligibility criteria to buy these plans.

Residency

You should be an Indian resident before you qualify to buy a money-back policy from an Indian insurance company.

Regular income

Most insurance companies state you must have a steady income to buy these plans.

Entry age

You can buy this plan between the ages of 18 years to 60 years. If you're self-employed, the upper end of the entry age is raised to 65 years.

Policy term

Most Money-back Plans offer terms that can be 5, 10, or 15 years long. You can choose what kind of term coverage you're looking for based on your requirements and budget.

Premium payment mode

A premium payment mode is how often you'll be paying your premiums. In a money-back plan, you can choose how usually and how much you'll pay for your premiums. You can make payments annually, bi-annually, quarterly, and monthly.

Drawbacks of Money-back Policies

Here are the limitations of Money-back plans.

Lower returns

Money-back policies in life insurance in India typically offer lower returns when compared to other investment options. The primary reason is that a portion of the premium is used for the survival benefit. As a result, the remaining amount available for investment is lower, resulting in lower returns.

Limited coverage

Another significant drawback of money-back policies in life insurance in India is limited coverage. These policies may not provide adequate coverage for policyholders who require a higher sum assured. Additionally, the amount paid out as a survival benefit may not meet the policyholder's financial needs.

No optimisation for inflation

Money-back policies in life insurance in India may not keep up with inflation, leading to the erosion of the policy's value. The fixed payouts that the policyholder receives may not be enough to meet their financial goals and needs in the future, especially if the cost of living increases significantly.

High premiums

Money-back policies in life insurance in India have higher premiums than other types of life insurance policies. This is because the policy provides a survival benefit along with a lump sum payout at the end of the policy term. The higher premiums may only be affordable for some policyholders, leading to financial strain.

Tax Implications

Money-back policies in life insurance in India may have tax implications. The survival benefits the policyholder receives may be taxable per the Income Tax Act 1961. The lump sum amount received at the end of the policy term may also be taxable if the policyholder has not completed five years of continuous coverage.

Factors Determining Money-Back Plans in Life Insurance Premium

The following are the key aspects that affect this type of policy's premium rates:

Health Records: Your medical history impacts your premium rates. Healthier people get lower rates.

Age: Your age should be eighteen to sixty-five years. Besides, you should have a stable income to make timely payments within the policy term (ten to twenty-five or thirty years)

Lifestyle: Tobacco usage can increase the premium rates. Altogether, your lifestyle may drastically impact your health and premiums.

Coverage Amount: You must pay more premiums if the death benefit is higher.

Riders: Additional riders, such as critical illness or accidental/disability benefits, may increase the premiums.

Type of Policy: Various money-back plans come with various premium structures.

Gender: Women usually get lower premium rates than men.

Insurer: Note that the insurance company or insurer you choose is another factor that may impact the policy's premiums.

Wrapping it Up

So, considering the above details, you can select the best money-back policy from the market. Remember that money-back plans are a type of life insurance policy that offers periodic payments to the policyholder during the policy term, in addition to the death benefit. However, like any life insurance policy, it's crucial to thoroughly research and understand the pros and cons before deciding. Ensure you buy the best policy that suits your needs.

Frequently Asked Questions

Below are some of the frequently asked questions on Money-back policies in Life Insurance

How long are Money-back Policies valid for?

Money-back Policies give you regular payouts from your insurance company. You will usually receive these payouts every 4 to 5 years. A Money-back Policy is similar to an Endowment plan.

What risks are associated with a Money-back Policy?

Money-back Policies are low-risk, compared to other types of Life Insurance Policies. You'll get guaranteed returns from your sum assured and survival benefits, reducing the risk of losing your invested money.

Are money-back policies in life insurance in India suitable for everyone?

No, money-back policies in life insurance in India may not be suitable for everyone. They are ideal for policyholders who require periodic payouts and a lump sum amount at the end of the policy term.

Is a 'child money-back plan' similar to money-back policies in life insurance?

A child money-back plan offers survival incentives that meet children's educational needs or wedding (or international education).

Can you add riders to a money-back policy in life insurance?

You can include riders in the money-back policy. However, it varies from one plan to another. These riders can increase the policy's coverage and premiums.

Do you receive death benefits?

The beneficiary(s) or nominees get the sum assured when the policyholder dies before the term ends. It also includes a bonus. Note that it may not include the survival benefits.

How frequently does a policyholder have to pay premiums for a money-back policy?

The premiums are flexible. You may select annual or monthly options as per your requirements.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.