Everything about a Money Back Life Insurance Plan

In today’s world, where living standards and inflation both are increasing at unprecedented levels, not only financial security but liquidity is also of utmost importance to meet the regular life goals.

It's a blessing to have an investment that not only provides financial coverage to help your dependents in case of your unforeseen demise, but also helps to meet other financial needs.

Money Back Plans not only assures financial protection to your dependents but also offer guaranteed returns at regular intervals during the policy term.

A Money Back Policy is a kind of insurance plan that provides the dual benefits of insurance and investment. In this, the policyholder is paid back a predetermined percentage of sum assured at regular intervals. These payouts are known as survival benefits. On maturity, the balance sum assured along with any additional bonus is paid to the policyholder, thus, the term Money Back.

In case of unfortunate demise of the policyholder during the policy term, complete sum assured is paid to the nominee, regardless of all the survival benefits paid earlier.

Now that we know what a Money Back Policy is, let's see who should buy it.

Money Back Policy should be opted by people who:

• Want to keep their investments liquid and receive regular income rather than keeping it locked in the complete policy term.
• Want to save for a specific long-term goal, especially periodic goals like your child’s high school education, graduation and then higher studies. The survival benefits make sure that the periodic corpus requirements are met.
• Want to have a financial protection for their family so that even in case of their untimely demise, the family’s financial requirements are met.

1. Participating Money Back Plan

2. Non-Participating Money Back Plan

1. Death Benefit

2. Survival Benefits

3. Maturity Benefit

• In case of Non-Par Policies: If the policyholder survives the complete policy term, they are paid the balance sum assured, after deducting the amount already paid as survival benefits.
• In case of Par Policies: The additional bonuses declared by the insurer in case of par policies are also added to the maturity amount in addition to the balance sum assured.

4. Bonus

5. Surrender Value

6. Riders

Now that you’ve done your research, determined your requirements, checked the available plans and analysed them according to your requirements, buy a policy that is most aligned with your requirements and future goals.

Next, that you have bought the policy, lets understand its working in the following steps:

• Pay Regular Premium: Premiums are paid at regular intervals as per the frequency (monthly, quarterly, or annually) and the type (limited or regular premium), as chosen by you.
• Growth Period: During the policy term, while a portion of the premium goes towards building your insurance cover, the other portion is allocated towards investments for corpus building by the insurance company.
• Survival Benefits: At predefined intervals, the policyholder receives a percentage of the sum assured as ‘survival benefits.’ These payouts provide liquidity and financial support for regular life requirements.
• Maturity Benefit: On the completion of the policy term, if the policyholder has survived the entire term, they receive the balance sum assured as a maturity benefit. If it's a participating policy, they also receive bonuses.
• Death Benefit: In the case of unfortunate death of the policyholder during the policy term, the nominee receives the complete sum assured, regardless of the survival benefits already paid, thus ensuring financial security for the dependent family.

This is the fundamental working of a money-back policy, that offers a combination of insurance protection and periodic returns, thus ensuring financial security for the family, and at the same time, aiding in corpus building for life goals.

Illustration

Let’s see an example to see the working of a Money Back Policy. Mr. Ravi has purchased a non-participating money back policy with a sum assured of ₹10,00,000, a policy term of 20 years and 20% survival benefits paid every 5 years.

Case 1: Mr. Ravi receives ₹ 2,00,000 each (20% of sum assured) on the 5th, 10th and 15th year. On the 20th year, the balance sum of ₹ 4,00,000 is paid as maturity benefit

Case 2: Mr. Ravi receives ₹ 2,00,000 each on the 5th and the 10th year. In the 12th year, Mr. Ravi loses his life in an unfortunate road accident. In this case, his nominee receives ₹ 10,00,000 as death benefit.

In a participating money back plan, the insurance company invests its assets, the premiums accumulated from the policyholders across different financial instruments and grows the corpus. The profit earned from these investments is then shared with the policyholders in the form of bonus.

Since the profitability is not guaranteed and keeps changing, the bonuses are also the non-guaranteed component. Bonus also depends on a few other factors like the kind of policy you have chosen, the tenure of your policy etc.

Majorly, there are three types of bonuses in a participating money back policy:

1. Reversionary Bonus

2. Terminal Bonus

3. Cash Bonus

Cash bonus in money back insurance plans is periodic payout that policyholders receive during the policy term. It is determined as a percentage of the annual premium and is paid to the policyholder at the end of each financial year.

It is calculated as:

Cash Bonus = Annual Premium Amount X Cash Bonus Percentage.

These payouts provide policyholders with liquidity and financial flexibility, allowing them to meet various financial needs or reinvest the funds.

Riders are the additional benefits that can be added to your base policy, for a small extra premium, to enhance the coverage and offer customised benefits.

Some of the most common riders available with the money back policies are:

1. Critical Illness Rider

The Critical Illness Rider provides an additional payout if the policyholder is diagnosed with a specified critical illness during the policy term. Thus, it helps cover the medical expenses and other financial obligations that may arise due to a critical illness.

Some of the common critical illnesses covered under this rider are heart ailments, cancer, stroke, organ transplants, etc. For the complete list of critical illnesses, you should refer your policy document.

2. Accidental Death Benefit Rider

3. Waiver of Premium Rider

4. Accelerated Death Benefit

5. Hospital Cash Benefit

1. Financial Goals

2. Coverage

3. Policy Term

4. Features

5. Survival Benefit