Financial experts normally advise thoroughly analysing your options before making any investments. Because financial needs differ from person to person, financial institutions have devised several investment options to accommodate a wide range of needs.
As investors, we expect our insurance plans to assume the main responsibility for caring for our families while we are away. Furthermore, we are looking for tactics that will offer us returns after a specific amount of time.
If we gain a return on our investment, our happiness has no bounds. This is human nature, and it has led to confusion between a term insurance policy and a money back policy plan. It is vital to recognise the difference between the two.
What is Term Insurance?
A term plan is a pure life insurance policy that protects your loved ones financially in the case of your death. If the policyholder dies while the policy is still in existence, the remaining beneficiaries will get a death benefit. For the term chosen, an insurance seeker is required to make monthly premium payments to their specified insurance provider. The amount of your premium is decided by your age and health at the time you acquire the insurance.
When you buy a term plan online, you may be able to save more money on the premium. Unless you invest in term insurance with a premium return, there is no payout if the policyholder survives the term because it is a pure life insurance product.
What is a Money Back Policy?
A money back policy is an endowment plan type that combines insurance with investing. The policyholder receives a specified sum assured at regular intervals, which is the survival benefit. The final payout is given at the end of the insurance period.
In addition to the survival benefit, the policyholder gets bonuses earned over the policy period, which are also given at the time of the final payout. If the policyholder dies while the policy is still valid, the nominees get a death benefit in addition to the bonuses accumulated throughout the policy period.
Term Plan vs Money Back Policy
Money back policies are life insurance and investment plans in which the life guaranteed receives a portion of the total money at regular intervals rather than a single payment at the end of the term.
Term plans, on the other hand, are pure protection plans that give cash coverage to the life assured and his family in the event of an unexpected incident.
1. Life Cover
One of the most desirable features of term insurance is that it delivers a considerable sum assured for a small premium amount. It is best to buy a term plan online to maximise your discounts. For the same premium charged, the coverage level for a term plan is noticeably more than that of a money back policy.
This implies that if the policyholder dies while the policy is still valid due to an unforeseen occurrence, the term plan will pay the nominees a bigger sum as the death benefit than a Money back policy, which has a substantial downside when it comes to the death benefit.
2. Return on Investment
As previously stated, a term plan is a pure life insurance policy and hence does not provide any return at maturity. This implies that if the policyholder lives to the end of the term, no money is refunded to them or the nominees. Unless a person has chosen term insurance with return of premium policy, in which case the premiums paid are returned to the insurance holder at policy maturity.
However, it is crucial to remember that the rates charged for term insurance with the money-back feature are significantly more than those charged for conventional term insurance. Furthermore, no interest is paid on this money. As a result, instead of choosing term insurance with money back, go for a simple term plan and invest in other wealth-generating products.
A money back policy has an investment component. In a money back policy, if a certain period is met, a specific proportion of the sum insured is paid out as a dividend. In addition, the policyholder is entitled to various incentives collected during their money back policy from time to time.
These cumulative bonuses accumulated over the policy’s lifetime are repaid at the time of the last instalment towards the money back policy. These incentives are also passed to the remaining beneficiaries in the case of the policyholder’s death.
As a result, money back policies provide a higher return on investment than standard term plans. The survival advantages of a money back policy might assist an individual with achieving short-term goals such as supporting a child’s higher education or organizing a family trip.
3. Tax Benefits
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Because both term insurance and money back policies are classified as insurance products, they offer the same tax advantages. Both of these insurance are exempt under Sections 80C and 10(10D) of the Indian Income Tax Act of 1961.
Section 80C allows for a tax exemption of up to 1.5 lakhs on term plan or money back policy premiums. Section 10(10D) exempts insurance policy payments from taxes, whether they are a death benefit, maturity benefit, or survivor benefit.
Section 80D allows for an extra exemption of $25,000 for health insurance-based riders. As a result, if a policyholder chooses riders such as critical illness in addition to their base term plan, they are qualified for the Section 80D exemption.
Wrapping It Up
When deciding between the two, you must consider your aspirations as well as your financial needs. A term insurance policy is a protection policy with no investment component. It will provide financial security for your loved ones if something unfortunate happens to you.
However, if you want to see a return on your investment, you should choose a money-back life insurance policy. In addition to providing insurance coverage, it also serves as an investment vehicle.
Those who have previously satisfied their protection needs and have extra funds might use money back plans to accomplish their long-term financial objectives. When making a selection, keep the goal of the investment in mind.