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Understanding the Basics of a Money Back Policy

Updated On Sep 11, 2021

People often look for insurance policies to secure the financial future of their loved ones in their absence. But, the benefit gets doubled when you get insurance along with investment. So, if you have been looking for insurance cover along with an investment option, consider a money-back policy without any second thoughts in mind. Why? Let us shed light on the many reasons that make money back policies worth the time, money and effort. 

What Is a Money Back Policy?

A money-back policy is a life insurance policy type that pays out a specific percentage of the sum assured at regular intervals. The sum assured is evenly distributed throughout the policy term. What makes money back different is that it does not provide a lump sum amount at the end of the policy term. Rather, it provides pay-outs in the form of survival benefits as long as the policyholder survives. In the event of the death of the policyholder, before the policy becomes mature, the nominee gets the maturity amount, the whole sum assured, in addition to any accrued bonuses.

Key Features of Money Back Policy

Some of the major features of money back policies that you would come across are:


Money-back plans provide income during the term of the policy. The sum assured, regularly received in the form of survival benefits, can be easily used for paying off debts, purchasing a vehicle, planning education, going on trips and many more life goals. 

  • Money-back policies offer dual benefits. Due to their enhanced liquidity and maturity benefits, money back plans combine the benefits of insurance along with investment.
  • Money-back plans offer death benefits, which means that even if survival benefits are paid throughout the term period in the form of instalments, the death benefit is paid out in whole if the policyholder dies before the policy maturity.
  • Money-back policies come with rider benefits like any other standard insurance plan. You will easily find add-on benefits like critical illnesses, accidental death and more that can be added to the present cover. 
  • Money-back plans provide tax benefits under the Income Tax Act. 

How Do Money Back Policies Work?

Let us understand the working of a money-back policy with the help of an example. 

Suppose an individual buys a money-back plan of Rs. 10 Lakh for a policy tenure of 25 years. They pay premiums on a regular basis, without fail. Their money-back plan promises survival benefits worth 2% after every 5 years of the policy. On maturity, 20% of the sum assured is paid in addition to the added bonuses.

The insured individual receives Rs. 2 Lakh every 5 years. At the end of the 20th policy year, they receive Rs. 8 Lakh. Once the plan matures, they are paid Rs. 2 Lakh with the added bonuses. Thereafter, the plan terminates. 

On the contrary, if we go by the worst-case scenario, the insured individual, unfortunately, dies in the 18th year of the policy tenure. In this case, their nominee will receive Rs. 10 Lakh along with the due bonuses. The nominee will receive the amount even if the insured individual had received Rs. 6 Lakh in the form of a survival benefit.

Who Should Buy a Money Back Policy?

Money-back policies are a great purchase for policy buyers willing to get insured as well as invested. Moreover, people who have a low-risk appetite or are risk-averse can seek the money-back policy option to get both income and maturity benefits.

Also Read: 

Why You Shouldn't Dodge The Idea Of Purchasing A Money-Back Plan?

Are Money-Back Policies Productive?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard. 

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