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Term Life Insurance vs Money Back Insurance
Have you ever stood in a store, staring at two similar products, wondering which one would give you better value for your money? That's precisely how many people feel when choosing between term life insurance and money back insurance.
While a term insurance policy is meant purely for the financial protection of your dependents in your absence, a money-back plan offers a combination of coverage and investment options. Let's break down these two popular insurance options, explain their features, benefits, and limitations, and help you make an informed decision.
Table of Contents
What is a Term Life Insurance Plan?
Term insurance is a life insurance plan that provides coverage to a policyholder for a pre-decided number of years called policy ‘term’. The policyholder determines the assured sum as well as the term at the time of buying a policy. In the event of any unfortunate incident during this term, the nominee will be compensated with the entire sum assured mentioned in your policy.
Apart from providing financial protection to your dependents in times of crisis, one great advantage of buying term insurance is its affordable premium amount. You can easily estimate your premium and coverage needs using a term calculator, which helps you make informed decisions based on your age, income, and financial goals..
What is a Money Back Insurance Plan?
As per its name, a money back insurance policy is an endowment plan that enables an individual to get back some amount at fixed intervals called a survival benefit. In this type of insurance policy, the insurance company provides a certain portion of money to the insured individual instead of compensating a large sum at the end of the policy term.
Protection + Savings → Money Back Policy
In case anything unfortunate happens to the insured person before the maturity of the policy, that person’s nominee is entitled to get the assured sum, regardless of the survival benefits offered previously. A money-back insurance policy enables a person to retain proper liquidity and, at the same time, build their savings.
Key Differences Between Term Insurance and Money Back Policy
To help you decide which policy is right for you, let’s compare term life insurance and money back insurance across several key factors:
Illustration of Term Life and Money Back Insurance with Different Scenarios
Scenario 1: Term Life Insurance
Rahul, a 30-year-old software engineer, has a wife and a 2-year-old child. He wants to ensure his family’s financial security in case of his untimely death. Since he has a home loan and other financial responsibilities, he opts for a term life insurance policy with a high sum assured and affordable premiums.Scenario 2: Money Back Insurance
Priya, a 40-year-old teacher, wants to save for her daughter’s higher education and marriage while also securing her family’s future. She chooses a money back insurance policy that provides periodic payouts to meet her financial goals and a death benefit for her family’s security.When to Buy Term Insurance?
When to Buy Term Insurance?
Term insurance can be a smart choice in several scenarios:
- Young Families with Limited Budget: Many young families face tight budgets, especially when they are just starting out, as they manage costs related to children, housing, and daily living expenses. Term insurance provides a large death benefit for a relatively low premium compared to permanent life insurance.
- High Loan Commitments: Individuals with significant loans, such as mortgages or student loans, may benefit from term insurance, as it can help cover outstanding debts. If the policyholder passes away, the death benefit ensures that loved ones are not burdened with the financial strain of remaining debts.
- Individuals with Short-Term Insurance Needs: If you have short-term financial responsibilities, such as raising children or paying off loans, term insurance can be an ideal choice. It can be purchased for specific periods, like 10, 20, or 30 years, aligning with the duration of your financial obligations. Once these responsibilities diminish, you can reassess your insurance needs.
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When to Buy Money Back Insurance?
When to Buy Money Back Insurance?
Money back insurance policies can be advantageous in several situations:
- Disciplined Savings Seekers: Money back insurance is great for people who want to save money but find it hard to do consistently. This type of insurance provides you with a refund at specific points during the policy, helping you stay on track with your savings plan. You can use these payouts for big events in your life, like your child’s education or a wedding.
- Conservative Investors: For those who don’t want to take risks with their money, money back insurance combines insurance with a safe investment option. Unlike regular investments that can lose value, these policies offer guaranteed returns, along with life insurance coverage. This is perfect for people who prefer knowing exactly how much they will get back, especially during uncertain times.
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Pros and Cons of Term Life Insurance
Pros and Cons of Money Back Insurance
Note: Here is something crucial that many people overlook: the impact of inflation on your insurance coverage. A ₹1 crore coverage today won't have the same value 20 years later. Term insurance often offers options to increase coverage over time, while money back policies typically have fixed coverage.
Tax Benefit of Term Insurance and Money Back Insurance
Term Insurance
The death benefit is completely tax-free under Section 10(10D), ensuring that beneficiaries receive the full amount without any tax deductions.Money Back Policy
- Survival benefits are exempt from tax under Section 10(10D), providing policyholders with financial support when needed.
- Maturity benefits are also tax-free as long as the total premiums do not exceed 10% of the sum assured, making it a favourable option for long-term savings.
Money Back vs Term Insurance - Which is Better for You?
Choosing between term life insurance and money back insurance isn't about which one is better; it's about which one better suits your specific circumstances, financial goals, and comfort level with different financial products. Term insurance excels at providing maximum protection at minimum cost, making it ideal for those who want pure life coverage and are comfortable managing their investments separately.
Money back insurance, while more expensive, offers the convenience of combining insurance with guaranteed returns and might suit those who prefer a more structured financial product with regular payouts. Take time to understand your needs, compare multiple options, and perhaps consult with a financial advisor before making your decision.
FAQs about Term Life Insurance Vs Money Back Insurance
Can I get money back on my term life insurance?
Who can buy term life insurance?
Is a money back insurance policy tax-free?
What are types of term life insurance plans?
Mentioned below are the types of term life insurance plans available:
- Credit Term
- Renewable Term
- Decreasing Term
- Level Term Policy
- Convertible Term
What is the difference between term insurance and a back policy?
Can I cancel my term insurance policy and get my money back?
Can I surrender my money-back policy?
What happens if the insured dies during the term of a money-back policy?
Do we get money back in term insurance after maturity?
Can I withdraw money from my term life insurance?
Do I get my money back after term life insurance expires?
Can I use money-back insurance for hospital expenses like health insurance?
Other Important Term Insurance Guides
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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