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Understanding The Difference Between Money Back Policy And Term Insurance

Updated On Sep 22, 2021

Money-back plans are life insurance and investment plans in which the life insured receives a portion of the total value at regular intervals as opposed to a single payment at the end of the term. Term plans, on the other hand, are pure protection plans that pay out cash to the life assured and his family in the event of a major disaster. As investors, we expect our insurance plans to assume the main responsibility for caring for our families while we are away. Furthermore, we are looking for systems that will offer us returns after a certain length of time. This is human nature, and it has led to confusion between a term insurance policy and a money-back insurance plan. It is critical to grasp the difference between the two.

Money-Back Plans vs. Term Life Insurance Plans

To make an informed choice, you must first understand the difference between the two types of insurance plans.

1. Coverage

The term plan is a form of life insurance that offers comprehensive coverage at a low cost. A moneyback insurance policy, on the other hand, ensures a lower sum for the same price. In the case of the insured's death, a term plan will pay a lump payment to family members to provide financial stability, whereas a money-back plan will pay the sum pledged plus any earned bonus.

2. ROI (return on investment)

The insurance company will not provide any survival benefits if you survive the policy term of a term plan. The money-back plan, on the other hand, will reimburse a certain percentage of the sum insured at predetermined intervals over the policy period.

3. Benefit from taxation

Both insurance schemes provide tax benefits. The Income Tax Act of 1961, Section 80C, exempts premium payments for term life insurance and money-back money-back plans from taxation. The highest amount of exemption is INR 1.5 lakh. The maturity benefit, death benefit, or survival benefit are not taxed.

4. Benefits

Benefits such as death benefit, maturity benefit, and survival benefit are offered under the money return plan. Term insurance, on the other hand, provides a cash payout in the event of death. Some term insurance plans may provide a maturity benefit.

5. Method of Benefit Payment

A lump-sum payment is made at regular intervals under the Money Back Policy. Term insurance death benefits might be paid in one lump sum or monthly payments.

6. Bonus

Money-back plans are frequently participation plans, which implies that a bonus might be declared on the insurance. Term insurance policies are non-participating, which means no incentives are recorded on the policy.


When choosing between the two, consider your co-objectives as well as your financial necessities. A term insurance policy is a protection policy that does not include an investing component. If something bad occurs to you, it will offer financial security for your loved ones. If you want to see a return on your investment, though, you should select a money-back life insurance policy. It also functions as an investment vehicle in addition to providing insurance. Those who have previously met their protection needs and have excess income may be able to use money-back programs to achieve their long-term financial goals. When making a decision, keep the investment's goal in mind.

Also read - Understanding Money Back Plans in Detail

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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