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What Makes Money Back Policy Different from Term Insurance Plans?

Updated On Sep 06, 2021

Money-back plans are life insurance and investment plans in which the life insured receives a percentage of the entire value at regular intervals rather than a lump sum at the end of the term. Term plans, on the other hand, are pure protection plans that provide cash coverage to the life assured and his family in the case of a serious catastrophe. As investors, we expect our insurance policies to take on the primary responsibility of caring for our families in our absence. In addition, we are searching for programs that will provide us with returns after a specific period. Our delight knows no boundaries if we obtain a return on our investment. This is human nature, and it has resulted in a misunderstanding between a term insurance policy and a money-backmoney back insurance plan. It is essential to understand the distinction between the two.

Term Life Insurance Plans vs.  Money Back Plans

To make an informed selection, you must first grasp the distinction between the two types of insurance policies.

  • Coverage

The term plan is a type of life insurance that provides a high level of coverage for a cheap cost. A moneyback insurance policy, on the other hand, provides a smaller sum insured for the same premium amount. In the event of the insured's death, a term plan will pay a lump amount to offer financial stability for family members, whereas a money-backmoney back plan will pay the sum promised plus any earned bonus.

  • Return on investment

 If you survive the policy term under a term plan, the insurance company will not give any survival benefits. The money-backmoney back plan, on the other hand, will repay a set proportion of the sum assured at certain time intervals during the policy term.

  • Tax advantage

Both insurance programs provide tax advantages. Section 80C of the Income Tax Act of 1961 exempts premium payments for term life insurance and money-backmoney back plans from taxes. The maximum exemption amount is INR 1.5 lakh. There is no tax on the maturity benefit, death benefit, or survival benefit.

Must read: Are Money Back Plans Really Helpful?

  • Benefits

Under the money return plan, benefits such as death benefit, maturity benefit, and survival benefit are provided. Term insurance, on the other hand, pays a death benefit. Some term insurance policies additionally provide a maturity benefit.

  • Mode of Benefit Payout

In the Money Back Policy, a lump sum payment is paid out at regular times. Term insurance death benefits are paid as a single amount or in monthly installments.

  • Bonus

Money-back plans are often participation plans, which means that a bonus may be declared on the insurance. Term insurance plans are non-participating plans, which means that no incentives are reported on the policy.

Conclusion

When deciding between the two, co objectives well as your financial needs. A term insurance policy is a protection policy with no investment component. It will provide financial security for your loved ones if something unpleasant happens to you. However, if you want to see a return on your investment, you should choose a money-back life insurance policy. In addition to providing insurance, it also serves as an investment vehicle. Those who have previously satisfied their protection needs and have extra income might money-back back plans to accomplish their long-term financial objectives. When making a choice, keep the objective of the investment in mind.

Also read: Why a Money Back Plan is the Best Investment Option?

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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