What is a Money Back Plan?

A money back plan is an insurance plan where you get back the premiums you have paid by the end of your policy term along with the protection from a life cover. In a basic term insurance plan, the premiums you pay go towards providing you with life cover, but you do not get any benefits if you reach the end of the policy. Money back plans have the added advantage of providing a survival or maturity benefit, meaning that the policy has a tangible financial benefit that can help you with your life goals!

Money back plans are a great option for those who want more than just life cover from their insurance policy. While life cover is essential to keep your loved ones secure in your absence, pure life cover plans offer no financial returns if you survive. However, do note that not all money back plans are the same. Some plans are more focused on savings with guaranteed returns, while other plans only return your premium amount without any growth. Below are the various types of money back insurance plans that are available in India.

Types of Money Back Plans

Return of Premium Plans

Generally, a term plan only provides life cover for a nominal premium. You do not get back your premiums at the end of a term insurance plan. With a return of premium plan, you not only get term insurance for an affordable price, but you also get back the premiums you have paid over the course of your term as a maturity benefit. Note that return of premium plans do not have a growth rate. Such plans are the purest type of money back plans, as the value of your maturity benefit will be equal to your premiums (excluding medical fee, rider cost etc.) without any added returns.

Guaranteed Savings Plans

If you want your money back along with additional returns, then a savings plan is what you are looking for. Savings plans not only pay back your premiums, but they also provide additional returns on top of that. The premiums you pay in a savings insurance plan have two functions:

• Paying for your life cover
• Acting as a savings corpus that grows over time

During the policy term, the premiums you pay will ensure that your loved ones are protected with life cover in case you pass away. And at the same time, your premiums will also be saved and allowed to grow at a predetermined rate of returns. Savings plans generally have guaranteed returns, meaning that you know exactly how much money you will be getting back at the end of your policy.

Participating Plans

Guaranteed returns usually have a modest rate of returns, and that rate is unlikely to increase over the course of your policy term. On the other hand, a participating plan allows for higher returns if your insurance company performs well. Participating plans have a profit-sharing benefit instead of predetermined rate of returns, meaning that you get back a share of your insurance provider’s yearly profits. Of course, this means that your returns are not a 100% guaranteed. Sometimes the company might perform well while other times its profits might be underwhelming. This means that there is an element of risk in participating plans, and your returns are non-guaranteed.

Unit Linked Insurance Plans

A Unit Linked Insurance Plan or ULIP is a plan that combines elements of market-linked investments and life insurance. Your premiums are invested into funds that grow according to the current market rate. You can choose between equity funds (high risk high reward), debt funds (low risk but lower returns), or balanced funds (a mix of debt and equity). With a ULIP, you can turn your insurance plan into a key part of your investment portfolio. Your ULIP funds will be locked-in for 5 years, after which you can make withdrawals whenever you need.

Comparing Term Plans vs Money Back Plans

Term Insurance Plans	Money Back Plans
Pure life cover with no additional benefits	Life cover plus returns on investment
Affordable premium rates	Slightly higher premium rates
High life cover	Life cover ranges from 10x to 20x premium paid
No survival/maturity benefit	Get survival benefit as income or maturity benefit as lumpsum payout

 

Conclusion

Life insurance can be more than just a means to safeguard your family, it can also be an integral part of your portfolio that can help you achieve your financial goals. A money back plan is the perfect blend between insurance and savings. If you want high life cover with return of premium option, then consider checking out Edelweiss Life- Zindagi Protect. On the other hand, if guaranteed savings is more up your alley, then take a look at Edelweiss Life- Guaranteed Savings STAR.

 

Chirag Iyer - BFSI Enthusiast

Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.