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Money back policy

Money back policy

A money back policy is a traditional, savings-oriented life insurance plan which also allows liquidity. Unlike other life insurance plans where the benefit is paid on policy termination due to death or maturity, money back plans pay regular pay-outs during the term of the policy. Thus, these plans provide periodic payments and differ from other life insurance plans.

How a money back plan works?

A money back policy is offered for a stipulated tenure. During the tenure, regular pay-outs are made which are calculated as a percentage of the sum assured. These pay-outs are done only if the insured is alive at that period. On maturity, the remaining sum assured is paid. If, however, the insured dies during the term, the full sum assured is paid irrespective of the money back benefits already paid.

Let’s understand with the help of an example.

A money-back policy has the following details

  • Sum assured – Rs.5 lakhs
  • Term – 20 years
  • Money back benefits – 20% of the sum assured after every 5 completed policy years

In this policy, Rs.1 lakh would be paid as money back benefit in the 5th, 10th and 15th policy year. In the 20th year, when the policy matures, Rs.2 lakhs would be paid and the policy would be terminated. If the insured dies in the 16th policy year, Rs.5 lakhs would be paid as death benefit.

Features and benefits of the plan

A money back plan has some salient features and provides various benefits too. Here is a list of the plan’s features and benefits:


  • Survival benefits

    The periodic benefits which are paid under money back plans are called survival benefits. These benefits are paid only if the insured survives till the pay-out period.

  • Nature of pay-out

    Survival benefits, under most money back plans are paid in one lump sum. However, in some plans, there might be a provision of monthly incomes too.

  • Bonus additions

    Money back plans are usually offered as participating plans which offer bonus. Simple or compound reversionary bonus is declared and paid under money back plans. The accumulated bonus is paid either on maturity or death thereby enhancing the plan benefits.

  • Riders

    Additional coverage features, called riders, are also available with money-back plans. These riders come at an additional premium and increase the scope of coverage.

  • Tax benefits

    Premiums paid for money-back plans, like other life insurance plans, qualify for tax deduction under Section 80C. Even the money back benefits received and the maturity or death benefit is a tax-free income in the hands of the policyholder.

  • Premiums

    Premiums for the plan can be paid regularly, for a limited period or at once. Different money back plans have different premium paying options.

Who should buy a money back plan?

A money back policy is suitable for individuals who are looking for regular incomes at specified intervals. People who want to get assured returns within a short period of time can buy these plans. Individuals can get tax saving benefits as well as assured returns by investing in money back insurance plans.

Why do you need to buy a money back policy

A money-back policy provides lump-sum benefits during the tenure of the policy. This feature ensures that you will have a regular flow of income no matter what your tenure period is. The money that is paid back on a regular interval is a percentage of the total sum assured. The percentage may differ from company to company. A traditional life insurance policy may be one of the best investment options. However, it may not be able to fulfil your sudden financial needs as the sum assured is released only after the tenure ends. This is where the money-back policy proves to be quite beneficial. Now let’s understand why you need it:

  • A money-back provides both survival and death benefit along with bonuses.
  • It provides a regular flow of income during the tenure period.
  • The plan also offers life insurance cover
  • This plan is one of the best options for individuals who are looking for a risk-free policy. A money-back policy involves low risk.
  • A money-back policy proves to be the most helpful when it comes to tackling a sudden financial problem.
  • In case the insured individual passes away during the tenure period, the entire assured sum goes to the nominee.
  • You may get additional tax benefits as well.

A money-back policy also involves rider benefits.

Money back insurance plans vis-à-vis other life insurance plans

Though money back plans are a type of life insurance plans, their feature sets them apart from other life insurance policies. Here is how money back plans differ from other life insurance plans:


Money back plansOther life insurance plans
Survival benefits are promised during the tenure of the planNo survival benefits are paid during the term of the plan
Full sum assured is paid as death benefit irrespective of the payment of the money back benefitsIf a benefit is paid during the term of the plan, the death benefit is reduced with the amount of benefit already paid
Bonus is added in almost all plansBonus might or might not be added

How to choose the best money back plan

There are a lot of money back plans available in the market. To choose the best plan, each plan should be compared against the following parameters.


  • The sum assured allowed

    Usually, there is no upper limit on the sum assured available under money back plans. However, you should check the maximum sum assured available to ensure that the coverage you are looking for is available under the plan.

  • The coverage features

    The coverage features of the plan should be checked to find out if there are any additional inbuilt covers which enhance the scope of the plan’s coverage.

  • The riders available

    The list of available riders should also be checked when comparing money back insurance plans. The best plan should allow all popular riders to be included in the cover.

  • The premium rate

    The premium rate is another important factor which should be taken into consideration when comparing money back plans. However, the premium rate should be compared together with the coverage offered by the plan.

Eligibility criteria for buying money back policy

There are some simple and basic eligibility criteria that you need to fulfil in order to purchase a money-back policy. Let’s have a look at these criteria:

  • The maximum and minimum age limit is set by each company
  • The premium payment mode and the terms must be followed by the individuals seeking a money-back policy.
  • Here is a list of a few documents that you may require:
    1. Proof of Income- Bank statement, salary slip, income tax returns, etc.
    2. Address Proof- Passport, Aadhaar card, driving license, voter’s ID card, etc.
    3. Proof of Age- Driving license, Aadhar card, passport, voter’s ID card, etc.
    4. Identity Proof- Aadhaar Card, PAN Card, Voter’s ID Card, etc.