Benefits of money back life insurance policy

By Aman Dhall & Dheeraj Tiwari, TNN

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 realise 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).

Benefits of money back life insurance policy

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,” explains Shyamal Saxena , chief distribution and marketing officer, Bharti AXA Life Insurance.

What makes these products even more attractive , says Saxena, 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,” he adds. Amitabh Singh, partner, global tax advisory services, Ernst & Young India believes 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,” he says.