Money Back Policy
A money back policy is a type of life insurance that pays a percentage of the sum assured at regular intervals during the policy term, rather than a single lump sum at the end. You receive survival benefits periodically, and if you die during the term, your nominee receives the full sum assured regardless of the survival benefits already paid out.
What Is a Money Back Policy?
In a money back policy, the insurer pays a fixed percentage of the sum assured every few years (called survival benefits). At the end of the policy term, you receive the remaining amount plus any bonuses. This structure makes money back plans suitable for people who want periodic cash flows rather than a lump sum at maturity.
Most money back plans pay 20% to 25% of the sum assured every 4 to 5 years during the policy term.
How Does a Money Back Policy Work?
Consider a 20-year money back plan with a sum assured of Rs 5 lakh:
– Year 5: 20% of sum assured = Rs 1 lakh survival benefit
– Year 10: 20% = Rs 1 lakh survival benefit
– Year 15: 20% = Rs 1 lakh survival benefit
– Year 20 (maturity): 40% = Rs 2 lakh + bonuses
Total received across all years: Rs 5 lakh plus accumulated bonuses
If the policyholder dies at any point, the nominee receives the full Rs 5 lakh sum assured, regardless of how many survival benefits have already been paid.
Key Features
– **Periodic payouts** – receive cash every few years without breaking the policy
– **Full death benefit** – nominee gets the complete sum assured on death, irrespective of payouts made
– **Bonuses** – most money back plans are participating; annual bonuses are added to the eventual maturity amount
– **Tax benefits** – premiums qualify for Section 80C deduction; payouts are largely exempt under Section 10(10D)
Money Back vs Endowment Plan
| Feature | Money Back | Endowment |
|———|———–|———–|
| Payouts during term | Yes, periodic | No |
| Maturity payout | Remaining sum + bonuses | Full sum assured + bonuses |
| Premiums | Slightly higher | Lower |
| Liquidity | Better due to periodic payments | Lower |
Practical Example
Anil buys a 20-year money back plan for Rs 10 lakh. He pays an annual premium of approximately Rs 65,000. He receives Rs 2 lakh every 5 years. These payouts help him cover his child’s school fees (year 5), higher education (year 10), marriage-related expenses (year 15), and retirement planning (year 20). If Anil dies in year 12, his family receives the full Rs 10 lakh death benefit.
Key Takeaways
– A money back policy provides periodic payouts during the policy term along with life cover
– The full sum assured is paid as a death benefit regardless of survival benefits already paid
– Bonuses add to the maturity payout for participating plans
– Premiums qualify for Section 80C deduction; proceeds are largely tax-free
– Suitable for those who want periodic cash flows to meet planned expenses at regular intervals
