Can a Money back plan be your source of passive income? Find out!
We are constantly on the lookout for new ways to generate wealth and secure our financial future. We invest in a variety of plans and other financial instruments with this goal in mind. Each of these has a distinct advantage. A money back plan is one such tool. Let’s learn more about this plan and how it can help with financial planning in the sections that follow-
What is a money-back plan?
A money-back plan distributes the sum assured as survival benefits evenly over the policy’s term as long as the policyholder survives. If the insured is still alive after a few years of the policy’s inception, the survival benefit becomes payable and continues until the policy’s maturity.
If the policyholder dies before the plan matures, the nominee(s) receive the maturity amount, the entire sum assured, plus any bonus if accrued.
Let’s look at an example to better understand the mechanism of this plan:
When you are 20, your father purchases a money-back policy in your name. The first payment of survival benefit will be made in the fifth year, with which you will be able to pay off your student loan or cover educational expenses. The second payment will be made in the tenth year, when you are thirty years old, to assist you with wedding expenses or a home loan.
When you reach the age of 35, the third payment can help you save for your child’s education or any other mid-life endeavor. The final payment will be made when you are 40 years old, in the 20th year. The balance of the sum assured will be paid to you in the form of a reversionary bonus. You can use this money to plan an adventure or to cover your child’s educational expenses.
Benefits of a Money Back Plan
A money-back plan provides the life assured with a secure life insurance policy as well as guaranteed returns on survival. This is the best saving plan in India for anyone who wants to financially assist his or her family in the event of his or her untimely death while also ensuring he or she has another source of income that will be beneficial in the long run.
1. Death Benefit
The policyholder’s nominee will receive the death benefit in the event of the policyholder’s death. The death benefit is equal to the sum assured determined by the policyholder at the time of purchase. Any additional bonuses that have accrued will also be provided to the nominee.
The death benefit of a money-back plan is a guaranteed income, which means that the family members or nominees will receive the amount promised by the insurer. This feature is not available in all life insurance policies, such as endowment policies.
2. Maturity Benefit
The maturity benefit is paid to the policyholder if he or she survives the policy term. The maturity benefit is typically calculated as a percentage of the sum assured amount selected by the policyholder at the outset. During the tenure, this amount may or may not have been upgraded.
If the sum assured is upgraded, the upgraded sum assured will be provided. Along with the sum assured, any survival benefits due are also distributed at the same time. Furthermore, any bonuses accumulated during the policy’s tenure will be included in the maturity benefit.
3. Survival Benefit
The survival benefit is paid for as long as the policyholder is alive and well during the policy term. This benefit’s regular payouts are spread out over the term and are usually a fixed percentage of the sum assured as determined by the policyholder.
Typically, payouts do not begin immediately after the policy is purchased but rather after a few years. The payouts are viewed as a reward given to the insured by the insurer for remaining fit and healthy.
The payments can be used to cover major expenses in the policyholder’s life, such as a wedding, children’s education funds, a down payment on a new house, and so on. If the policyholder dies during the policy term, the survival benefit payouts will stop, the death benefit and any bonuses will be paid out, and the policy will be canceled.
Best saving plans in India include a feature known as the reversionary bonus. A reversionary bonus is a bonus that the insurance company declares at the end of each year. The sum is calculated as a percentage of the sum assured. There are two types of reversionary bonuses: simple and compounded. The compound reversionary bonus is added to the sum assured each year, whereas the simple reversionary bonus is not.
The compound bonus has the added benefit of calculating the bonus for the following year based on the new sum assured amount, so the bonus grows over time.
Money-back plans also include a terminal bonus, which is a reward for the policyholder’s on-time and consistent payment of premiums. It is paid in addition to the maturity or death benefit and is not guaranteed because it is at the discretion of the insurance company.
Life insurance companies provide specific riders to life insurance policies to supplement the basic policy type. The policyholder is charged an additional premium for the add-on riders, which cover him or her against a variety of risks.
Money-back plans include riders for critical illness, accident/disability, term, hospital cash, waiver of premium, and accelerated sum assured. Each of the riders is intended to assist the policyholder in times of need.
6. Tax benefits
Policyholders who pay premiums for the money-back plan can benefit from tax breaks. Section 80C of the Income Tax Act of 1961 defines the benefits. Furthermore, the survival benefit, maturity benefit, and bonuses are all tax-free.
Wrapping It Up
People who want to make an insurance-based investment but also want liquidity should consider a money-back policy. With a money-back plan, you not only get life insurance, but you also get a regular income from the profits you make from policy investments.
If you are a young person, the policy will assist you at regular intervals for various financial needs, such as down payments for a new vehicle or home, medical needs of self, parents, or children, educational needs of self, siblings, spouse, or children, loan prepayments, funding your own, siblings’, or children’s weddings, and so on.
Since money-back plans are endowment policies, the risk factor is low, so you do not need to be concerned that your investment will not produce good results. Almost all money-back policies provide guaranteed and fixed returns, allowing you to properly plan your finances.