Money Back Plan is a type of insurance plan that offers you life cover and the benefit of investments. When you buy a money back plan, you will receive monthly income during the policy period. Regardless of the market up and down, you will get the money as specified in your policy document. And in case you die, the insurer will pay a sum assured to your family, so they can be financially stable in case of your absence. Let’s learn more about the benefits of money back plans.
Benefits of Money Back Plans
Buying a money back insurance plan means getting the below benefits –
Death Benefit for Family
If you’re not around to provide financial support to your family, the money back plan will do so in that case. The money received will help your family meet their financial needs in your absence.
The payable amount will be as follows –
Sum Assured on Death + Accrued Bonuses if any
The total death benefit is subject to a minimum of 105% of the paid premiums. Your death benefit will also get affected based on your premium payment term. For a limited period of premium payment like 7/10 years, it will be higher of:
- 10X or 7X the Annualized Premium as mentioned in the policy schedule
- Sum Assured
But that’s not the only factor affecting your death benefit. If your age at entry is < 45 years, the sum assured on death will be higher of:
- 1.25X the Single Premium
- Sum Assured
If your age at entry > 45 years, the sum assured on death will be higher of
- 1.10X the Single Premium
- Sum Assured
Note – The death benefit values may differ based on your insurer. So, do check their offerings before purchasing.
Maturity Benefit Under Money Back Plans
Upon survival till the end of the policy term, you’ll receive a maturity benefit along with the applicable bonuses. And you can get this by paying all your due premiums. Using this money, you can meet your financial goals.
In case you survive till the end of the specified durations during the policy term, a percentage of the Basic Sum Assured shall be payable at the end of each of the 5th, 10th & 15th policy years. This may vary based on your insurer.
You can borrow against your money back plan to meet your financial needs in case an emergency arises. This benefit is available only if money back plans a surrender value. And the same happens when you pay premiums for at least two years. The minimum amount you can borrow is INR 5,000 or INR 10,000, subject to a maximum of 60% of the surrender value. The company will charge interest on the loan amount that will be equal to yield to maturity on 10 years G-Sec + 2%. The interest rate can be reset at the start of each financial year, subject to prior approval from the Insurance Regulatory and Development Authority of India (IRDAI).
You can customize your money back plans by adding any of the below riders to it –
Accident Death – In case you die due to an accident, an additional sum assured shall be payable to your family. For this, the nominee needs to submit proof of accident such as FIR report, post mortem report, etc.
Premium Waiver – When you become disabled due to an accident, the company will waive all your future premiums.
Critical Cover – In case of diagnosis of major illnesses during the policy term, the company will pay a sum assured as specified in the policy. The Critical Illness Insurance rider cover provides financial security against conditions such as cardiovascular diseases, kidney failures, cancer, etc. The lump sum amount will be paid if the same is proved and diagnosed after the policy inception.
Bonuses Under Money Back Plans
The insurance company will declare bonuses during the policy term which is as follows –
This bonus is calculated as a percentage of your chosen sum assured and declared as per thousand of the sum assured every policy year. Suppose if the Simple Reversionary Bonus rate is INR 50 per thousand of sum assured, which is INR 10 Lakh, the payable bonus will be = 50 x (10,00,000/1,000) = INR 50,000
This bonus is declared at the end of the financial year. If your money back policy matures or you die between two successive bonus declaration dates, the interim bonus is payable. This bonus is calculated for the remaining days from your last bonus.
A terminal bonus also known as the final bonus is declared and added to your money back policies upon maturity. This bonus is offered if the policy continues till the maturity date. So, it won’t be payable if you have surrendered the policy or if it has acquired paid-up value.
The premium paid for the money back plan is deductible under Section 80C of the Income Act of 1961. However, your premium must be less than 10% of your chosen sum assured. And the payable sum assured will be tax-free under Section 10(10D) of the Income Tax Act of 1961, subject to prevailing tax laws.