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If you’re seeking an investment that provides both life insurance and money redemption, a guaranteed return plan could be the way to go. If you are a typical investor looking for a low-risk financial instrument that offers protection and investment while also providing the advantage of guaranteed returns, a money-back policy is ideal for you.
Simply said, this plan is appropriate for those who require money at regular intervals to accomplish short-term or long-term financial objectives. Suchmoney back plans are available from life insurance providers.
What is a Money Back Policy?
A money back plan is a kind of life insurance policy that, unlike other types of plans, ensures liquidity. A conventional life insurance policy pays out when the insured dies or the policy matures. A guaranteed return plan, on the other hand, pays out at regular intervals during the insurance’s term.
This policy is seen to be a good fit for investors in their late 30s who seek significant pay-outs after 5-10 years to support their children’s education or marriage or to fund a real estate investment.
Here, the nominee has the benefit of receiving the whole sum insured in case of the policyholder’s demise. There is no reduction for previously collected survivor benefits here.
How does a Money Back Plan Work?
With the assistance of an example, let us learn how money back plans function. Vinod purchased money-back insurance with an amount insured of INR 20 lakhs for a policy term of 20 years. He would begin collecting 20% of the money promised as payouts after five years, and the remainder would be collected after the insurance expired.
Thus, INR 4 lakh would be distributed in the fifth, tenth, and fifteenth insurance years. Vinod will earn INR 8 lakhs when the insurance matures in the 20th year. If he dies before the maturity date, the amount insured is paid to the nominee as a death benefit.
Benefits of Money Back Policy
Let’s take a look at some valuable benefits of a guaranteed return plan
1. Survival Benefit
Money is given to the policyholder every few years for the term of the insurance. The payout starts a few years after the insurance is issued and continues until the policy matures.
Consider the following scenario: Akash has selected a money back plan that guarantees an amount of Rs. 5 lakhs over a 20-year period. He must pay a 20-year premium and will be paid a share of the money promised at regular intervals.
Depending on the policy conditions, he may get 15% of the total promised as a survival benefit after the 5th, 10th, and 15th years of the policy, which is 15 X 3 = 45% of the sum assured. At maturity, he will also get the remaining 55% of the guaranteed sum plus any bonus.
2. Death Benefit
The insurance nominee will get the death benefit in the case of an unfortunate incident. This covers both the cash promised and any bonuses accrued under the money back plan. This excludes the survival bonus, which is only given to the insured while they are still alive.
3. Maturity Benefit
When the money back plan matures, the insured person gets the maturity benefit, which includes the following:
- Sum Assured: It is the total amount of coverage chosen by the insured at the start of the policy.
- Bonus: This includes any stated reversionary benefits accrued by the insurer over time. This is heavily influenced by the company’s performance.
4. Tax Benefit
Section 80C of the Income Tax Act permits you to deduct up to Rs. 1,50,000 in life insurance premiums each year from your taxable income. Furthermore, Section 10(10)D exempts the money back policy’s maturity benefit from taxes.
Features of Money Back Policy
Before you buy a money back insurance, whether it’s a kid money back plan or another sort of coverage, you should be aware of the following features:
1. Guaranteed Returns
After a certain time, money is repaid to the life insured as a survival reward. It is guaranteed if the policyholder outlives the insurance period. If the policyholder dies, the nominee gets the guaranteed amount as well as any accrued bonuses, if any. This applies to child money back arrangements as well.
2. Income During Policy Term
A guaranteed return plan guarantees that the insured will get returns or the amount guaranteed every few years. As a result, the survival value accumulates over time and provides policyholders with a secondary source of income.
This money might be used to take a trip, save for an unforeseen event, put down a deposit on a home or apartment, or pay off the children’s school or tuition expenses. As a consequence, money back plans outperform other forms of life insurance on the market.
3. Riders to Increase Cover
As the name indicates, most insurance companies provide optional add-on riders that the insured may ‘add on’ to their guaranteed return plan. These riders might be associated with medical situations such as life-threatening diseases, personal injuries, or even term riders.
4. Bonus Amounts
The Money Back insurance even adds to the insured’s income as a bonus. The incentive is computed and accumulated each year as a percentage of the money insured by the insurance provider. The accrued bonus is added to the total payment payable when the insurance matures, or the policyholder dies.
Wrapping It Up
Money Back insurance makes sense for an investor seeking guaranteed returns with the possibility for growth, as well as payouts at certain intervals in their life to meet major future needs. However, before choosing a Money Back plan, there are a few things to consider.
Examine your financial objectives to determine whether they are compatible with the advantages of the Money Back guarantee. Assess your risk-taking ability as an investor. Overestimation and underestimation may both harm your investment results in the long run.
Canara HSBC Life Insurance provides a range of products, including one of the most reputable money back plans. The plans provide simple liquidity, guaranteed additions, built-in and optional riders, and life insurance for the insured.