Money Back Insurance Policies

A money back investment plan is designed to help investors protect themselves against the unpredictability of life. It offers a life cover along with regular guaranteed1 returns that are paid at predetermined intervals so that investors can meet expenses associated with milestone moments in life, such as buying a car, paying for a child’s higher studies, wedding expenses, and so on.

Money Back Insurance Policy Definition

A money back insurance policy is a financial instrument that offers periodic payouts (known as survival benefits) at specified intervals, along with a payout in the event of the death of the policyholder (known as the sum assured). These survival benefits amount to a certain percentage of the sum assured.

At the time of maturity, the remaining sum assured is paid to the policyholder. It is also important to note that in case of a death, the entire sum assured is paid to the nominee, irrespective of any survival benefits that have already been paid.

As a result, money back insurance policies not only protect your family during a crisis, but also help ensure that you have ample funds to fulfill certain milestone goals in life.

Let’s understand how a money back insurance policy works with the help of an example.

Supriya has purchased a money back insurance policy that has a total term of 20 years and a sum assured of ₹20,00,000. This policy offers a survival benefit of 20% every 5 years, which means she will get ₹4,00,000 on the 5th, 10th and 15th year of the policy. On reaching the 20th year, she would receive the remaining ₹6,00,000 and any applicable bonus.

As a result, Supriya is able to plan her life goals accordingly. During the payouts in the 5th, 10th and 15th year of the policy, she purchases a car, puts a down payment on a flat, and saves money in a retirement scheme respectively.

If Supriya had passed away at the 19th year of the policy, her nominee would have still received the total sum assured of ₹20,00,000.

How does a Money Back Insurance Policy Work?

A money back insurance policy offers not only guaranteed¹ periodic returns, but also a sum assured and applicable bonuses. In order to offer bonuses to investors, these plans are designed to be participating plans. This means that a portion of the premium paid is invested by the insurance company in the market. When the investment gains a profit, it is distributed back to the investors in the form of a bonus.

The bonus associated with the money back insurance policy can come in two forms:

1. Revisionary bonus: This bonus is added to the sum assured at the end of each year by the company, based on its profits. It can change every year, based on the way the company’s investments are performing.
2. Terminal bonus: This bonus is paid to the investor in the form of a reward for timely premium payments. A great way to ensure you are eligible for this bonus is by setting your premium payments to auto-pay. Some policies refer to this as a persistency bonus.

The investment component of the policy does not have any impact on the sum assured - this is a guaranteed¹ amount that the insurance company promises to the policyholder in exchange for premiums. As a result, such policies do not have a high level of risk associated with them. The policyholder will get the sum that is promised to them, along with a bonus only if it's applicable. In other words, there is no “loss” of money for the investor.

Benefits and Components of a Money Back Insurance Policy
A money back insurance policy has specific benefits and components that investors must take into consideration when planning for their future. These benefits and components are:
iconbullet
Survival benefits:
This refers to the sum of money that is paid every few years to the policyholder. This money is typically a percentage of the sum assured, and the actual amount can vary based on the policy chosen as well as the sum assured itself.
iconbullet
Maturity Benefit:
The maturity benefit is made up of a few components that are critical to understand. These include:

a. Sum assured
b. Bonus amount
c. Remaining survival benefit
iconbullet
Death Benefit:
In some policies, the death benefit refers to the sum assured, while in others, the death benefit refers to the sum assured and bonus amount. As this can vary from policy to policy, it is essential to read the documents carefully to know what to expect.
iconbullet
Sum Assured:
The guaranteed¹ amount that is to be paid to the policyholder at the time of maturity. The sum assured is generally mentioned on the policy document.
iconbullet
Bonus:
The bonus refers to any profit on the investment made by the company on behalf of the policyholder.

Features of a Money Back Insurance Policy

The following are some of the features of a money back insurance policy:

iconbullet
Guaranteed Returns:
One of the key features of a money back insurance policy is that the plan offers guaranteed¹ benefits. While different policies have different payout periods identified in their documents, these survival benefits are typically paid every 5 years to the policyholder. The sum assured also falls under the bracket of ‘guaranteed¹ returns’.
iconbullet
Income feature:
As money back insurance policies offer periodic income, it allows investors to plan different purchases in the future, based on the policy’s payout plans. As a result, investors can rest knowing that their family can enjoy new milestones without worrying about finances.
iconbullet
Death Benefits:
During an unfortunate event, family finances are thrown into disarray. At such times, the death benefit from a money back insurance policy plan can help the family meet their immediate expenses and stay secure.
iconbullet
Bonus Amounts:
As a money back insurance policy is a participating policy, investors stand to gain a bonus amount at the time of maturity. However, it is important to note that the bonus is only applicable if the insurance company’s investments have turned a profit, and if the premiums were paid on time.
iconbullet
Add-on Riders:
As is the case with many life insurance policies, money back insurance policies can be enhanced with the help of riders³. These riders are discussed in further detail below.

Applicable Riders

Investors can easily enhance their money back insurance policies with the help of optional riders³. However, it is important to understand that adding a rider³ means an increase in the monthly or annual premium you must pay. The riders³ applicable for money back insurance policies are:

Factors to Consider Before Buying a Money Back Insurance Policy

A money back insurance policy is designed to help investors meet expenses at certain periods in their lives. Therefore, the policy itself should be chosen based on the estimated expenses, or life goals of the policyholder.

It is important to note:

1. A money back insurance policy is not a pure investment instrument. It is a mix of investment and life cover, and so, investors must plan their other investments accordingly.
2. Such policies can be taken out for children as well as they can help with paying for education, marriage, and other landmark moments in life.
3. Since the maximum entry age of such policies varies between 55-60 years, investors can also take out such policies for their parents to secure their retirement further. However, the premium and term period of the investment may not be the same as the premium and term for a younger investor, due to their age.

How to Buy a Money Back Investment Plan?

There are many money back investment policies available in India, and buying one online is quite simple. Investors must:

1. Create an account on the bank’s website, or sign in with their existing credentials.
2. Select the applicable policy.
3. Submit the KYC documents for verification.
4. Pay the premium amount using UPI, NEFT, or their debit card. The payments can be set to auto-pay to ensure convenience.
5. Save the soft copy of the policy on the desktop, and ensure a printed hard copy is stored in a save area.

Similarly, you can also purchase a money back investment plan offline.

1. Go to the bank that is offering the desired policy or call an agent to help you
2. Sign the policy document after reading it carefully
3. Submit your KYC documents
4. Pay the premium amount in the form of cash or via digital transactions such as UPI. You can also use online transactions such as NEFT.
5. Ask the agent to set your payments on auto-pay for timely payments.
6. Save the hard copy of the policy in a safe area.

Frequently Asked Questions on Money Back Insurance Policy

A money back insurance policy is generally considered to be a low-risk policy. It offers guaranteed1 returns in the form of the sum assured and survival benefits. It also offers a bonus amount.
The following documents are needed to buy a money back policy:
  • Identity proof (in the form of Aadhar Card, Passport, Driver’s License, and so on)
  • Age proof (in the form of Aadhar Card, Passport, Driver’s License, and so on)
  • Address proof (in the form of Aadhar Card, Passport, Driver’s License, and so on)
  • PAN Card
  • 2 Passport Size photographs
You should buy a money back insurance policy if:
  • You are looking for an investment that offers guaranteed1 returns on a periodic basis.
  • You want to guarantee having ample funds to meet different milestones in life (such as buying a car, paying for your child’s education, getting married, and so on).
  • You want to secure your family in the event of an untimely death.
  • You want a low-risk investment option.
  • You are the primary breadwinner of your family.
The eligibility criteria for a money back insurance policy is as follows:
  • Minimum entry age: Some money back insurance policies have a minimum entry age as low as 7 days, while others may have a minimum entry age of 18 years. Investors must read the policy document carefully to know if they are eligible for the plan.
  • Maximum entry age: The maximum entry age for money back insurance policies can range from 55-60 years (the exact age can vary from policy to policy).
  • Indian citizens are eligible to invest in money back insurance policies.
You can get the following riders3 to enhance your money back investment plan:
  • Critical Illness Rider
  • Premium Waiver Rider
  • Accidental Death/Disability Cover
  • Accelerated Sum Assured
  • Hospital Cash Benefit Rider
  • Term Care Rider
Under Section 80C of the Income Tax Act, the premiums paid for money back insurance policies are exempt from tax, upto Rs. 1.5 lakhs.
Show All
Hide
  • Disclaimer

    ¹ Provided all due premiums are paid.
    ² Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
    ³ There are exclusions attached to the rider. Please refer to the brochure.
    ADV/7/22-23/808