Term Insurance vs Money Back Policy

When considering life insurance options, two prevalent choices are term insurance and money back policies. While one is known for its cost-effective structure, the other is popular for the low-risk returns it offers as maturity benefits.

Understanding the distinctions between these plans is crucial for making informed financial decisions.

Term Insurance

Term insurance is a straightforward life insurance product that offers financial protection for a specified period. If the policyholder passes away during the policy term, the nominee receives the sum assured. However, if the policyholder survives the term, no benefits are payable. This type of insurance is designed purely for risk coverage without any savings or investment components.

To determine the costs for the coverage you seek, a term insurance calculator can prove to be quite handy.

Money Back Policy

A money back plan is a type of life insurance policy that combines insurance coverage with periodic returns. It provides survival benefits at regular intervals during the policy term, along with a lump sum payment upon maturity. In the event of the policyholder's death during the term, the nominee receives the full sum assured, irrespective of the survival benefits already paid. Hence, rather than being a one-time investment plan, money back policies work along the lines of life insurance while also providing some low risk returns.

Premiums paid towards almost all life insurance plans, including term plans and money back policies, are eligible for deductions under Section 80C, and the survival and maturity benefits are generally tax-free under Section 10(10D). These deduction claims may only be available to taxpayers under the old tax regime, subject to prevalent tax laws.

Term Insurance vs. Money Back Policy

When evaluating term insurance vs. money back policy, several factors come into play:

Purpose of the Plan

A term plan primarily focuses on providing financial security to beneficiaries in the event of the policyholder's untimely demise.

A money back policy, on the other hand, combines insurance coverage with savings, offering periodic returns to the policyholder during their lifetime.
Premium Costs

A key feature, often known as a common term insurance benefit, is lower premiums, thus making it cost-effective for obtaining substantial coverage.

Considering the range of benefits they offer, money back policies come with relatively higher premiums due to the added savings and periodic payout components.
Returns

A level term insurance policy does not provide any survival or maturity benefits. The benefits are paid only upon the policyholder's death during the term.

On the contrary, a money back life insurance plan offers regular payouts during the policy term and a lump sum upon maturity, serving as a savings vehicle.
Risk Coverage

As opposed to a money back policy, term insurance is expected to provide pure risk coverage without any investment or savings element. Term plans are usually not a part of your investment process but rather considered under future security.

A money back plan is more likely to appeal to those who seek returns, as it combines risk coverage with savings, ensuring both protection and periodic returns.
Tax Implications

Money back plan and term insurance tax benefits are similar in nature, as both these plans are life insurance at their core. Premium paid as well as death benefits received can be claimed as tax exemptions under the old tax regime, subject to prevalent tax laws.

Choosing Between Term Insurance and Money Back Policy

The decision between term insurance vs. money back policy depends on individual financial goals, risk appetite, and affordability.

Choose term insurance if:
- You seek substantial life coverage at an affordable cost
- Your primary objective is to secure your family's financial future in your absence
- You prefer to invest the premium savings in other investment avenues for potentially higher returns
Choose money back policy if:
- You desire a combination of insurance coverage and regular returns
- You prefer a low-risk savings option with the added benefit of life cover
- You seek periodic payouts to meet short-term financial goals or expenses

It's essential to assess your financial objectives, risk tolerance, and investment strategies and preferences before deciding. With tools like a term insurance calculator, you can determine the appropriate coverage and premium amounts.

Both term insurance and money back plans have distinct features catering to different financial needs. Understanding the nuances of term insurance vs. money back policy is vital in aligning your insurance choices with your financial goals. While term insurance offers pure risk coverage with affordability, money back policies provide a blend of insurance and savings with periodic returns. Evaluating your financial objectives and consulting with a financial advisor can guide you in selecting the plan that best suits your needs.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.