Introduction
When it comes to financial planning, life insurance policy is one of the essential components. A life insurance plan not only provides financial security to your loved ones but also acts as a source of investment. Amongst the different types of life insurance plans available, a money-back life insurance plan has gained popularity over the years. In this article, we will explore the concept of money-back life insurance and everything you need to know about it.
What is a Money-Back Life Insurance Plan?
A money-back life insurance plan is a type of life insurance plan that not only provides life cover but also returns a portion of the premium paid at regular intervals during the policy term. Unlike traditional life insurance plans, where the sum assured is paid only on death, a money-back plan pays a percentage of the sum assured at fixed intervals.
How does it work?
In a money-back life insurance plan, a portion of the premium paid is invested in debt instruments, and the remaining amount is used to provide life cover. During the policy term, the insurer pays a percentage of the sum assured at fixed intervals as per the policy terms. This percentage can vary from 5% to 20% of the sum assured, depending on the policy terms. At the end of the policy term, the balance of the sum assured along with any bonuses is paid to the policyholder.
Benefits of a Money-Back Life Insurance Plan
- Financial Security: A money-back life insurance plan provides financial security to the policyholder’s family in case of his/her untimely death.
- Liquidity: The regular payouts provided by a money-back plan can act as a source of liquidity for the policyholder.
- Maturity Benefits: A money-back life insurance plan provides maturity benefits at the end of the policy term, ensuring that the policyholder receives a lump sum amount along with any bonuses.
- Tax Benefits: The premium paid towards a money-back life insurance plan is eligible for tax benefits under Section 80C of the Income Tax Act.
Drawbacks of a Money-Back Life Insurance Plan
- Lower Returns: As compared to other investment options such as mutual funds, a money-back life insurance plan offers lower returns.
- Complex Structure: A money-back life insurance plan can have a complex structure with varying policy terms and conditions.
- Higher Premiums: The premium paid towards a money-back life insurance plan is higher as compared to whole life insurance plans.
How to Choose a Money-Back Life Insurance Plan?
- Policy Terms: It is essential to choose a money-back life insurance plan with suitable policy terms that align with your financial goals.
- Premium Amount: The premium amount should be affordable and should not impact your regular expenses. You can calculate the premium through life insurance premium calculator.
- Claim Settlement Ratio: It is advisable to choose an insurer with a high claim settlement ratio to ensure that your family receives the sum assured in case of your untimely death.
Conclusion
A money-back life insurance plan is a type of life insurance plan that provides life cover as well as regular payouts during the policy term. It offers financial security to the policyholder’s family and can act as a source of liquidity. However, it is essential to choose a money-back plan with suitable policy terms and conditions. It is advisable to compare different plans before making a final decision.
FAQs
- Can I surrender my money-back life insurance plan before the policy term ends?
Yes, most money-back life insurance plans allow policy surrender. However, surrendering the policy before the policy term ends can lead to a loss of benefits.
- What happens if I miss paying the premium for my money-back life insurance plan?
If you miss paying the premium for your money-back life insurance plan, the policy may lapse, and you may lose the benefits associated with the plan. It is essential to pay the premium on time to avoid such a scenario.
- What is the minimum and maximum policy term for a money-back life insurance plan?
The policy term for a money-back life insurance plan can vary from insurer to insurer. However, most insurers offer policy terms ranging from 10 years to 25 years.
- Can I avail a loan against my money-back life insurance plan?
Yes, some money-back life insurance plans offer the option of availing a loan against the policy. However, the loan amount and interest rate can vary from insurer to insurer.
- Can I change the policy term or premium amount of my money-back life insurance plan after purchase?
No, the policy term and premium amount of a money-back life insurance plan cannot be changed after purchase. However, some insurers offer the option of adding riders to the policy to enhance the coverage.
