In today’s world, where living standards and inflation both are increasing at unprecedented levels, not only financial security but liquidity is also of utmost importance to meet the regular life goals.

It's a blessing to have an investment that not only provides financial coverage to help your dependents in case of your unforeseen demise, but also helps to meet other financial needs.

Money Back Plans not only assures financial protection to your dependents but also offer guaranteed returns at regular intervals during the policy term.

A Money Back Policy is a kind of insurance plan that provides the dual benefits of insurance and investment. In this, the policyholder is paid back a predetermined percentage of sum assured at regular intervals. These payouts are known as survival benefits. On maturity, the balance sum assured along with any additional bonus is paid to the policyholder, thus, the term Money Back.

In case of unfortunate demise of the policyholder during the policy term, complete sum assured is paid to the nominee, regardless of all the survival benefits paid earlier.

Now that we know what a Money Back Policy is, let's see who should buy it.

Money Back Policy should be opted by people who:

• Want to keep their investments liquid and receive regular income rather than keeping it locked in the complete policy term.
• Want to save for a specific long-term goal, especially periodic goals like your child’s high school education, graduation and then higher studies. The survival benefits make sure that the periodic corpus requirements are met.
• Want to have a financial protection for their family so that even in case of their untimely demise, the family’s financial requirements are met.

Based on the returns that you receive, a Money Back Policy can be classified into two types:

1. Participating Money Back Plan

A participating policy participates in the company’s profits from their investment of participating funds, that are then distributed as bonus or dividend. Thus, in addition to the guaranteed death and maturity benefits, these policies also provide non-guaranteed bonuses and dividends based on the company’s performance.

2. Non-Participating Money Back Plan

Non-Participating Money Back Plans, on the other hand do not participate in the company’s profits so there is no share in the profits earned by the insurer. Hence, the policyholders receive only the guaranteed death and maturity benefits. There are no bonus or dividends paid.

Here are some of the most important features of a money back policy:

1. Death Benefit

In the unfortunate event of the policyholder’s demise, the nominee is paid the complete sum assured of the policy, as death benefit, irrespective of the amount already paid as survival benefits.

2. Survival Benefits

The policyholder is provided a predetermined percentage of sum assured at regular intervals during the policy term. These payouts are known as survival benefits.

3. Maturity Benefit

• In case of Non-Par Policies: If the policyholder survives the complete policy term, they are paid the balance sum assured, after deducting the amount already paid as survival benefits.
• In case of Par Policies: The additional bonuses declared by the insurer in case of par policies are also added to the maturity amount in addition to the balance sum assured.

4. Bonus

Participating money back policies provide bonuses that are declared by the insurer as a share of their profits from investment of their participating funds. These bonuses are added to the sum assured and paid to the policyholder on maturity.

5. Surrender Value

Money Back Policy provides a surrender value in case you decide to discontinue your policy before the completion of term. Although at times, the surrender value is less than the total premium paid, you can be assured to receive at least a portion of your investment in case of emergencies when you cannot complete the term of policy.

6. Riders

As with other policies, money back also provide the option of adding riders to the plan as per the preference. So, you can add riders like critical illness benefit, accidental death benefit, etc., to customise and increase the coverage and benefits.

Now that you’ve done your research, determined your requirements, checked the available plans and analysed them according to your requirements, buy a policy that is most aligned with your requirements and future goals.

Next, that you have bought the policy, lets understand its working in the following steps:

• Pay Regular Premium: Premiums are paid at regular intervals as per the frequency (monthly, quarterly, or annually) and the type (limited or regular premium), as chosen by you.
• Growth Period: During the policy term, while a portion of the premium goes towards building your insurance cover, the other portion is allocated towards investments for corpus building by the insurance company.
• Survival Benefits: At predefined intervals, the policyholder receives a percentage of the sum assured as ‘survival benefits.’ These payouts provide liquidity and financial support for regular life requirements.
• Maturity Benefit: On the completion of the policy term, if the policyholder has survived the entire term, they receive the balance sum assured as a maturity benefit. If it's a participating policy, they also receive bonuses.
• Death Benefit: In the case of unfortunate death of the policyholder during the policy term, the nominee receives the complete sum assured, regardless of the survival benefits already paid, thus ensuring financial security for the dependent family.

This is the fundamental working of a money-back policy, that offers a combination of insurance protection and periodic returns, thus ensuring financial security for the family, and at the same time, aiding in corpus building for life goals.

Illustration

Let’s see an example to see the working of a Money Back Policy. Mr. Ravi has purchased a non-participating money back policy with a sum assured of ₹10,00,000, a policy term of 20 years and 20% survival benefits paid every 5 years.

Case 1: Mr. Ravi receives ₹ 2,00,000 each (20% of sum assured) on the 5th, 10th and 15th year. On the 20th year, the balance sum of ₹ 4,00,000 is paid as maturity benefit

Case 2: Mr. Ravi receives ₹ 2,00,000 each on the 5th and the 10th year. In the 12th year, Mr. Ravi loses his life in an unfortunate road accident. In this case, his nominee receives ₹ 10,00,000 as death benefit.

In a participating money back plan, the insurance company invests its assets, the premiums accumulated from the policyholders across different financial instruments and grows the corpus. The profit earned from these investments is then shared with the policyholders in the form of bonus.

Since the profitability is not guaranteed and keeps changing, the bonuses are also the non-guaranteed component. Bonus also depends on a few other factors like the kind of policy you have chosen, the tenure of your policy etc.

Majorly, there are three types of bonuses in a participating money back policy:

1. Reversionary Bonus

This type of bonus is declared periodically or at the end of each financial year, as a percentage of the sum assured. However, it is not paid immediately and becomes a part of the guaranteed benefits of the policy. It is paid either to the nominee at the time of death claim or to the policy holder, on maturity of the policy.

2. Terminal Bonus

Terminal Bonus is paid by the insurer as a recognition of your regular premium payment and continuation of the policy. It is paid along with either the maturity benefit or the death benefit. However, this bonus depends on the discretion of your insurer and is non-guaranteed.

3. Cash Bonus

Cash bonus in money back insurance plans is periodic payout that policyholders receive during the policy term. It is determined as a percentage of the annual premium and is paid to the policyholder at the end of each financial year.

It is calculated as:

Cash Bonus = Annual Premium Amount X Cash Bonus Percentage.

These payouts provide policyholders with liquidity and financial flexibility, allowing them to meet various financial needs or reinvest the funds.

Riders are the additional benefits that can be added to your base policy, for a small extra premium, to enhance the coverage and offer customised benefits.

Some of the most common riders available with the money back policies are:

1. Critical Illness Rider

The Critical Illness Rider provides an additional payout if the policyholder is diagnosed with a specified critical illness during the policy term. Thus, it helps cover the medical expenses and other financial obligations that may arise due to a critical illness.

Some of the common critical illnesses covered under this rider are heart ailments, cancer, stroke, organ transplants, etc. For the complete list of critical illnesses, you should refer your policy document.

2. Accidental Death Benefit Rider

The Accidental Death Benefit Rider offers payout in case of an accident. It enhances the death benefit, providing additional financial support to the policyholder's dependents in such unfortunate events.

3. Waiver of Premium Rider

With the Waiver of Premium Rider, if the policyholder becomes disabled or seriously ill and unable to pay premiums, the insurance company waives the premiums for the base policy. This ensures that the policy remains in force, and the coverage continues even in such unfortunate times of disability or illness.

4. Accelerated Death Benefit

The Accelerated Death Benefit rider allows the policyholder to receive a portion of the death benefit in advance if they are diagnosed with a terminal illness. This can help cover medical expenses and improve the quality of life during a difficult time.

5. Hospital Cash Benefit

Hospital stays require many expenses on a a daily basis. The Hospital Cash Benefit Rider provides a daily cash to the policyholder if they are hospitalized due to an illness or accident. This payout can be used to cover additional expenses associated with hospitalization, such as transportation, meals, and other incidental costs.

Before buying a money back policy, it is important to carefully consider the following factors:

1. Financial Goals

Determine your financial goals that you want to fulfil with the money back policy. Whether it's about disciplined savings, corpus building for a certain goal, insurance coverage, or regular income, if we are clear with our goals and expectations from our policy, we can choose a plan that is aligned with our goals.

2. Coverage

Determine the amount of coverage you need. It depends on a lot of factors, the most important being your income, savings, liabilities, family lifestyle and future financial goals. Selecting an appropriate coverage makes sure your family is completely protected financially in case of your unfortunate demise.

3. Policy Term

Once you have determined your goals, policy term is another major factor that you need to consider. Your goals must align with your policy term. Thus, if it's for a goal like child education or regular income post-retirement, the term of your policy should match with the timeline, so that you have funds available when they are needed.

4. Features

Understand the features of your policy thoroughly. Know the bonus that the policy offers, the riders available, the claim process, inclusions, exclusions, the range of sum assured offered and other features. Knowing what features your policy provides and how it works, helps you to reap the optimum benefits and have your expectations aligned.

5. Survival Benefit

Check the survival benefit paid in your policy. The amount and the frequency of payment. Choose a policy where the survival benefits payment and amount are in synch with your goals. Hence, plan your policy in a way that you receive funds when you need them for fulfilling your financial goals.