Skip to main content

Insurance Basics VII : Money Back Policy - Money Wise

A money back policy has dual benefits of insurance cover and periodic returns

MONEY back life insurance policies rank high on the popularity chart. And for good reason: they offer dual benefits of insurance and redemption of money at regular intervals. But little do people realize that they pay more towards premium amount in comparison to a term policy. Here’s a lowdown on what it takes to buy a money back policy and the issues involved.

FIRST THINGS FIRST

According to life insurers, money back policies fit perfectly in the scheme of things of traditional investors who seek financial instruments that provide insurance and investment, with a low risk element and guaranteed returns. In other words, the plan is meant for individuals who require money at certain intervals in their lifetime to meet fixed long and short-term financial needs (buying a house or car, vacations abroad). “Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the endowment period, it provides for periodic payments of partial survival benefits during the term of the policy, of course as long as the policy holder is alive.

What makes these products even more attractive is that in the event of death of the policyholder at any time during the policy term, the death benefit is the full sum assured without deducting any of the survival benefit amounts, which may have already been paid as money back components. “Similarly, the bonus is also calculated on the full sum assured.

It is a good safety net for individuals who are in their late 30s or early 40s and are looking at significant payouts after 10-15 years to fund their children’s higher education, marriage and other expenses. It creates a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations.


READ THE FINEPRINT

Before buying a money back plan, insurance advisors recommend that you should carefully check out the actual amount allocated towards the premium, how much of it is going to be accumulated and how much is the insurance company’s charges. The most crucial aspect, they believe, is reading the terms and conditions thoroughly and understanding each clause well.

Also, you should make sure that the periodic payouts are sound enough to meet your anticipated needs. It is also beneficial to analyze the past performance in terms of declared bonuses. Though the past is not necessarily an indication of future performance, it gives a fair idea of the insurance company’s commitment to its policy holders.

Some money back policy provides additional optional benefits such as critical illness benefits, additional term benefit, accidental death benefit and waiver of premium benefit.

Singh points out that an enquiry on the minimum number of years for which the premium is to be paid to keep the policy alive, is also a must check. The tax benefits on the survival benefits may not be available under certain circumstances for example where the premium in any year exceeds 20% of the sum assured. You should watch out for these pitfalls since tax benefits are key to the attractiveness of this policy.


THE FLIPSIDE

One of the primary disadvantages, insurance advisors feel, with money back policies is its low rate of return, when compared to market-linked insurance-cum-investment products. Also, while on the one hand, payout intervals are fixed and helpful for crucial life stage planning, on the other, you don’t have the flexibility to increase or decrease premiums and have a choice of sum assured to suit growing incomes and lifestyle. You don’t have the freedom to change the payout intervals. In case of surrender as well, it offers low paid-up value. For those who like to ascertain the charges of their investment products, it may not be the right choice as it is not disclosed to the policyholder.


MONEY, MONEY

PROTECTED SAVINGS - As the premiums paid are not linked to the capital market
Guaranteed returns

LIQUIDITY - Meet intermittent liquidity requirements at important stages of life stage

LIFE INSURANCE - In case of an eventuality to the insured person

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now