Money Back Policy: Everything You Need to Know

money back policy life insurance coverage plan

In life, nothing is guaranteed. There are unfortunate events which are out of our control. If we’re smart enough to prepare ourselves from these misfortunes, the impact can be less frustrating; however, when it comes to our demise, that’s another story. 

When it’s our time to go, the people that we leave behind suffer. That being said, everything must be planned down to the last detail for our family. There are more than a handful of insurance policies out there that can support your family financially in case anything happens to you. Getting a private health quote online is quick and will help you compare which insurance policy is suitable for your needs. 

However, one that is gaining popularity for risk-reluctant individuals is a money back policy. 

What Is A Money Back Policy? 

A money back policy differs from regular health or life insurance. In most life insurance policies, the insured will only be able to receive the insurance amount, plus a certain percentage, after the insurance matures. The payment terms are somewhat similar though. The insured will have to pay premiums annually throughout the entire policy term. 

A money back policy is an excellent way to hedge against financial crisis, accidents, or worse, death. The insured would have to pay certain premiums annually, and the amount will depend on the policy plan type. The only difference is that the insured will receive regular payouts, called “survival benefits,” after every five-year interval. This will also be contingent on the type of money back plan. On average, the payout amount is mostly 20 percent of the total policy amount. On the year of the policy maturity, the insured will receive the remaining amount on top of accrued bonuses and benefits. It is usually tax deductible. 

Who Can Avail Of The Money Back Policy? 

The money back policy is for anyone, regardless of status, who prefers low risks investments. This is beneficial for individuals who would like to protect themselves with a life insurance plan and investment at the same time. Despite that, these individuals are also looking for liquidity throughout the entire policy term to get good returns from their investments. 

Sample Scenario 

To better understand how money back policy works, let’s use accurate figures as examples. Let me introduce you to Arjun. Arjun is a young professional who would like to set aside his money for future unexpected financial emergencies. 

Arjun also wants to support his wife and three children in case he dies. Arjun buys a money back policy for an assured sum of Rs. 100 with a policy term of 25 years. Arjun pays an annual premium of Rs. 6. Including in his money back policy is a survival benefit amounting to 20 percent of the sum assured (total plan premium) which is given to Arjun after every five years throughout the plan. 

For example, Arjun receives Rs. 20 on the 5th year, another Rs. 20 on the 10th year, another Rs. 20 on the 15th year, and another Rs. 20 on the 20th year. On the 25th year, the year when the policy matures and terminates, Arjun will receive the remaining Rs. 20 plus additional interests and bonuses which will depend on your policy. 

What Happens When the Insured Dies? 

Let’s take Arjun’s money back policy. In case he dies on the 22nd year after buying the money back plan, his nominee is entitled to receive the full premium which is Rs. 100. Despite having been paid survival benefits for a total of Rs. 80 in the past four years, the nominee will also receive the bonuses on top of the full premium. 

What Are The Inclusive Bonuses After The Policy Matures? 

There are two primary types of bonuses the insured or nominee receives. One is the reversionary bonus, and the other one is the terminal bonus. 

The reversionary bonus is a year-end declaration by the life insurance company. Since the bonus amount will solely depend on company performance, there is no rigid bonus amount at the end of every year. This bonus is then added onto the final amount which the insured receives when the policy matures or the nominee when the insured does not make it throughout the entire plan. 

On the other hand, the terminal bonus is paid to the insured as a grant for consistently paying the premiums on time and without issues. However, insurance companies will have total discretion of the terminal bonus. Hence, this type of bonus is not an assurance. 

Benefits Of Money Back Policy 

• Low risks and good returns 
• Inclusive of life insurance coverage on top of yearly investments 
• Can be a great source of income within a 15, 20, or 25-year span depending on the plan 
• Death benefits to the beneficiaries 

What Happens If I Want To Cancel My Plan?

There are two main ways to cancel your term life insurance policy. The first option is to stop paying your premium. If you don't pay your premium within the grace period — the mandatory period set by your policy during which you can pay your premium without canceling your coverage — your insurance is canceled. You can also write a formal letter requesting your life insurance to be cancelled. 

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