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The primary purpose of buying life insurance is to cover the financial Risk for the family in case of any unfortunate event of death of the person whose life is insured. If you are looking to get an insurance cover, you may either buy a Term insurance, endowment plans, money back plans, ULIPs or annuities and Pension plans.
A Term Insurance is the purest form of life insurance Policy as it does not combine investment with insurance while money back and endowment plans combine insurance cover with investments. Traditionally the Premium received from both money back and endowment plans was invested in debt but in order to offer higher returns for investors, these days insurance providers offer ULIP versions of endowment policies through which customers have the option of investing their premiums in listed equities / capital market, depending on their risk appetite.
Although both endowment and money back plans combine insurance cover with investment there are some basic differences in the features of these policies that can make a lot of difference from an investor perspective.
The fundamental difference between a money back and an endowment policy is the time period of receipt of sum Assured / survival benefits.
In case of endowment plans, if you survive through the term of the plan, you will receive the Sum Assured and the accumulated bonuses as declared by the company at the completion of the term.
In case of a Money Back Policy the sum assured are paid by the insurance companies at every fixed interval after purchase of the policy, in such a proportion that at the expiry of the term, you get your entire balance of sum assured and the accumulated bonuses. The frequency of payment would vary for every policy. Like in case of a 25 year money back policy it is expected to pay a part of the sum assured after every five years. So, you might get 15% of the sum assured after completion of each 5, 10, 15 and 20 years from the purchase of the policy and the balance of 40% and the accrued Bonus if applicable will be paid on the completion of the 25th year.
The key benefit of a money back plan over endowment policy is that they give you the money when you most need it. As parents, we know we would need to fulfill several responsibilities in life including education and marriage of children and it would require significant investments. In order to be able to meet these financial obligations at the time when they are due, it would be a great relief for any parent. A money back policy by enabling partial pay outs of the sum assured at regular intervals, it empowers the investor, as he is able to get access to his hard earned money when he most needs without compromising.
Another advantage of a money back policy is about the death benefit. In case of death of the insured, the nominee can Claim the full amount of sum assured and the accrued bonus without any deduction of payments that has already been provided.
But we all know there is no free lunch in this world. Hence, if you compare the returns of an endowment policy to a money back policy, an endowment policy is likely to offer higher returns. This is the additional cost of periodic liquidity that a money back plan offers. But return is not the only criteria that one has to look for in case of financial investment. While deciding on your life insurance policy always relatively weigh your risk appetite, liquidity needs and needs for return and then take a decision.
It is also advisable to compare money back and endowment plans offered by different insurance companies through insurance comparison websites such as Easypolicy.com. Make a comparison of features and claims policy before purchasing any insurance plan.