Money-back life insurance plans are a popular type of life insurance policy that combines the benefits of both insurance and investment. These plans provide a fixed amount of money at regular intervals during the policy term, which can be used to meet specific financial goals or simply to supplement one’s income. In this article, we will take a closer look at money-back life insurance plans and explore their benefits and drawbacks.
What are Money-back Life Insurance Plans?
Money-back life insurance plans are a type of life insurance policy that provides a regular payout to the policyholder during the policy term. These plans are a combination of insurance and investment, as they offer life insurance coverage as well as a savings component. The policyholder pays a regular premium for a specific period, typically ranging from 10 to 25 years, and receives a fixed percentage of the sum assured at regular intervals during the policy term. The payout is typically made every five years or so, and the policyholder can use the money for any purpose, such as paying off debt, meeting expenses, or investing in other instruments.
Benefits of Money-back Life Insurance Plans
- Life Insurance Coverage: The primary benefit of money-back life insurance plans is that they offer life insurance coverage to the policyholder. In the event of the policyholder’s untimely demise during the policy term, the sum assured is paid out to the nominee. This ensures that the policyholder’s family is financially secure in the event of the policyholder’s death.
- Regular Payouts: Another significant benefit of money-back life insurance plans is that they provide regular payouts to the policyholder during the policy term. This can be especially useful for meeting specific financial goals, such as paying for a child’s education or funding a down payment for a house. The regular payouts can also serve as a source of supplemental income.
- Savings Component: Money-back life insurance plans also have a savings component, which allows the policyholder to accumulate wealth over time. The premiums paid by the policyholder are invested in a range of instruments, such as stocks, bonds, and mutual funds, which can generate returns over time. The policyholder can use the accumulated savings to meet specific financial goals or supplement their income in retirement.
- Tax Benefits: Money-back life insurance plans offer several tax benefits to the policyholder. The premiums paid are tax-deductible under Section 80C of the Income Tax Act, up to a limit of Rs. 1.5 lakh per annum. Additionally, the payouts received are tax-free under Section 10(10D) of the Income Tax Act.
Drawbacks of Money-back Life Insurance Plans
- Lower Returns: One of the main drawbacks of money-back life insurance plans is that they offer lower returns compared to other investment options, such as mutual funds or stocks. This is because a significant portion of the premium paid is used to provide life insurance coverage, which reduces the amount available for investment.
- Longer Lock-in Period: Money-back life insurance plans typically have a longer lock-in period compared to other investment options. The policyholder is required to pay premiums for a specific period, typically ranging from 10 to 25 years, before receiving any payouts. This can make it difficult to access the funds in case of an emergency.
- High Premiums: Money-back life insurance plans typically have higher premiums compared to other types of life insurance policies, such as term insurance. This is because a significant portion of the premium is used to provide life insurance coverage, which increases the overall cost of the policy.
Return life insurance – money back?
Money-back life insurance plans are a useful option for individuals who want to combine life insurance coverage with a savings component. These plans offer regular payouts during the policy term, which can be used to meet specific financial goals or supplement one’s income.