An individual buying Term
insurance is Assured
of death benefits if death occurs during the tenure of the term. The biggest drawback in such a Policy
is that the Premium
paid will go waste if the Insured
survives the policy term. An endowment policy avoids this drawback. It provides death benefits or lump sum returns depending on whether the individual insured survives the term or not. A Money Back Policy
is an improvement over the standard Endowment Plan
and offers cash back at pre-determined intervals.
A standard endowment policy, on the other hand, offers lump sum returns only at the end of the term. Not many individuals can pay premiums without receiving any returns for decades at a stretch.
There is no point investing money in a standard endowment plan that provides lump sum returns after a period of 30 years. Instead, it makes sense to invest in an investment plan that provides regular cash back at intervals of 5 – 10 years. Receiving Rs.1 lacs every ten years and a sum of Rs. 7 lacs at Maturity
of the 30-year term is much better than receiving Rs. 12 lacs after 30 years. This is the biggest advantage of going in for a money back policy.
Instead of choosing money back policies over endowment plans, one should create an investment plan that seeks to extract the best from all the options available. From investing money in the stock market to purchasing term insurance- one should use all available options to maximize financial security.
An investment portfolio making judicious use of the money back policy, FDs, government bonds, ETF investments, ULIPs, and Term Insurance
policies will help enjoy maximum financial security with minimum risks. Important Aspects of a Money Back PolicyBonus
Insurance companies offer a share in their profits to customers in the form of a bonus. This is the additional benefit in terms of returns available in the money back policy that boost investment returns, especially if one chooses a profitable insurance company.Death Benefits Are Independent of Money Paid Back
The Death Benefit
remains guaranteed even if the policy has paid back returns at regular intervals. The maturity amount paid after the end of the term of the policy may come down as money is paid back at regular intervals but the death benefit amount remains fixed. Hence, survivors are assured of a fixed amount irrespective of the amount received from the insurance company.
Upon death of the insured, the company shall pay the Sum Assured
plus other bonuses accrued upon the policy. Upon maturity, the insurance company shall pay the guaranteed maturity amount plus share in profits including bonus. Rates of Return
IRDA stipulates that all insurance policies should estimate returns @ 6% and 10% only. The actual rates of return may be higher. Keep track of market conditions to estimate a reasonable return that you will earn from the investment plan. It is advisable to presume that the market shall not offer returns beyond 10%. This will ensure you do not rely on inflated estimates when calculating rates of return on the policy. Power of Reinvestment
Reinvesting the money received from the policy can help you significantly boost long-term returns. Keep this factor in mind when spending the cash received. Avoid impulsive purchases and expenditure when you receive the money back. Remember, the money that you receive after regular intervals eats into the lump sum payment that you shall receive when the policy matures. Tax Benefits
The premium paid on a money back policy is Deductible
from the total taxable income U/s 80C. The money received at frequent intervals and the maturity amount received is exempt from tax. The standard tax benefits available to an insurance plan are available to this option as well.
The benefits of including the money back policy in your investment plans
are too numerous to be ignored. Other options may offer higher investment returns but this option offers security as well as good rates of return.