A money-back life insurance policy is a type of life insurance plan that provides a combination of insurance coverage and periodic payouts during the policy’s term. Unlike traditional plans that pay out only upon maturity or the policyholder’s death, a money-back policy returns a portion of the sum assured to the policyholder at regular, predefined intervals.
How a money-back policy works
The policy provides different types of payouts based on whether the insured survives the term or passes away.
During the policy term:
- Survival benefits:At specific intervals (e.g., every five years for a 20-year plan), the policyholder receives a percentage of the sum assured as “survival benefits”. These payouts can serve as an additional source of income to help with major expenses like a child’s education or a home down payment.
- Bonuses:Many plans are “participating,” meaning they share a portion of the insurance company’s profits with policyholders as bonuses, which can increase the overall payout. These bonuses are paid out at maturity or upon death.
- At the end of the policy term: If the policyholder survives the full term, they receive the remaining sum assured plus accumulated bonuses.
- In the event of the policyholder’s death: The nominee receives the full sum assured and accrued bonuses, irrespective of any survival benefits paid out.
Key benefits and features :
Benefits include guaranteed returns, liquidity through periodic payouts, life insurance coverage, and potential tax benefits.
Potential drawbacks to consider
Drawbacks include potentially lower returns compared to market investments, the risk of inflation, and higher premiums than term life insurance.
Is a money-back policy right for you?
A money-back policy may be suitable for those seeking a secure, low-risk savings tool with guaranteed returns, a consistent income stream for specific financial goals, and a combination of life insurance and savings.