First of all here I want to clarify that many people think that money back insurance policy is an investment options but as per my knowledge you should never think as an investment whenever you buy insurance policy. You are going to get the information regarding whether the Money back insurance policy is worth buying or not?
There are different types of life insurance. Some popular among them are followings.
- Term Life Insurance Policy offers financial coverage to the insured for a prescribed time period.
- Whole Life Policy is a plan in which the policy holder has to pay regular premiums until his death. The insurance amount is paid out to the family after the death of the policy holder.
- Endowment plans pay out the assured sum under both cases- death and survival of policy holder.
- Unit Linked Insurance Plans are investment oriented plans with risk cover of life.
- Money Back Policy is also intended to cover risk of life along with investment options.
Which type of policy is good? This question is irrelevant because each type of policy has its distinct features and all types are the best according to the intended policy holder’s need and goal.
Here we will discuss the question: Should I invest in Money Back Policy?
What is Money Back Policy?
A Money Back policy is a little variation of the endowment plan. The policy holder gets a fixed percentage of sums assured at regular interval of time in Money Back Policy while the insured gets lump sum amount at the end of the term in term plan or endowment plan. Both Money Back Policy and Endowment Plan have survival benefit.
First, we will consider the advantages and disadvantages of the Money back policy.
Advantages of Money Back Policy
- Money back Policy provides insurance coverage plus the fixed return on amount paid as well.
- Investment in life insurance is exempted from Income Tax under section 80 C. return on life insurance is also exempted from Income Tax. Thus, insurance plan is a good tax saver.
- Money back Policy is more suitable to those who belives that in term plan whatever premium we are paying is gone we will not get anything in return as in money back policy fixed maturity amount is given at the end of tenure.
- Many people consider this as an investment options and they find mutual funds and stock have high degree of risk because of volatility in capital market while money back policy is an insurance plan hence it has low risk exposure in comparison with other investment instruments.
- Money Back Policy offers you prescribed payouts at regular interval during the policy term. Thus, this plan can be a regular source of income.
- Money Back Policy offers insurance cover in case of unfortunate event like death of insured, the entire sum assured will be paid to the nominee irrespective of the amount paid as survival benefits.
Disadvantages of Money Back Policy
- Since money back plan provides maturity amount at the end of tenure the premium of money back plan is very high compared to term plan.
- Each life insurance plan is mainly intended for insurance/ life cover to insured. Since, premium is very high in money back policy the customer end up purchasing very low insurance coverage compare to what he or she should have.
- Money Back Policy is also an insurance plan and it is not good to use it as an investment product.
- There is low rate of return on investment on Money Back policy in comparison with other life insurance plans and other investment instruments like mutual funds, stock etc.
- Money Back Policy provide you safety but insurance plans are not traded on any financial markets hence Money Back policy has less liquidity than mutual funds or stocks.
- Like other term insurance policy, Money Back Policy has no cash value.
- There is no option of yearly dividend on any life insurance hence you lose the passive income of dividend while you can get dividend on mutual funds or stocks.
- Money Back policy or any other life insurance policy considers premium amount according to age of policy holder. If you go for insurance after age of 35, you will have to pay higher premiums.
We have explained both pros and cons of Money Back Policy.
As per our knowledge be believe one should never mix investment and insurance. So everybody must buy insurance with good insured coverage and for that term plan is the good option. If one wants to invest money then there are several investment options are their both with moderate risk like mutual fund and low risk like Fixed deposit and so on.