Insurance providers offer a wide array of products, making it difficult for insurance buyers to choose the right policy. There are instances of intentional mis-selling of certain products by few insurance intermediaries creating confusion in the mind of consumers. Term insurance is by far the purest type of insurance, which is considered safest for anyone purchasing a life insurance. The remaining insurance plans are a blend of saving plans or investment products.
Both Money back and endowment plans are considered traditional policies, which are widely popular among Indian consumers. Despite their popularity, insurance buyers remain confused regarding the suitability and return benefits of these two plans.The basic difference between money back and endowment plans lies in terms of survival benefits. Money back policy returns a fixed proportion of the sum assured during the tenure of the policy at regular intervals. On maturity of the money back policy, sum of the bonus amount is paid.
In an endowment plan however, the entire money including sum assured plus the bonus is paid when the policy matures. Suppose you buy an endowment policy which matures after 20 years, you will be entitled to receive the investment benefit after the full term of 20 years. In event of sudden death, both the plans return the sum assured amount to the insured.
Since a money back plan offers early investment benefits, the rate of return is little lower in comparison to endowment policies. These two policies come with the dual advantage of savings as well as life insurance. They both are also eligible for tax deductions, making them lucrative investment options for taxpayers.
Endowment Policy Vs. Money Back Policy
Money back plans are ideal for insurance buyers who need a regular source of income from their insurance policies to fund their financial objectives. The ones who go for endowment policy are mainly looking primarily for an alternative savings option. Below is an example of an endowment plan and money back plan for a clearer perception
Age – 35 years
Term of Policy – 15 to 20 years
Basic Sum Assured – INR 5,00,000
Yearly premium – INR 36,205
For a return of 4% – You get a maturity amount of INR 6,93,396 and terminal bonus of INR 33,676
For a return of 8% – You get maturity amount of INR 9,75,268 and terminal bonus of INR 90,054
Money Back Policy
Age – 35 years
Term of Policy – 20 years
Years of Premium Payment – 10
Basic Sum Assured – INR 5,00,000
Yearly premium – INR 59,110
For a return of 4% – You get a maturity amount of INR 5,11,984 and the terminal bonus of INR 83,509
For a return of 8% – You get maturity amount of INR 8,53,482 and the terminal bonus of INR 2,18,038.
Hence, in a money back policy you get a 120% survival benefit at the end of the plan. Thus invest in a money back plan for attaining short-term targets while investing in an endowment policy for enjoying a big chunk of your money at maturity to fulfill your most expensive dream.
Best Endowment Policies in India
LIC New Endowment Plan
There are 4 payment options – monthly, quarterly, semi-annually or annually, entry age is between 8-55 years. Policy tenure is 12-35 years, and minimum sum assured in INR 1 lakh. Its maturity age is up to 75 years.
Kotak Classic Endowment Plan
There are 4 payment options – monthly, quarterly, semi-annually or annually, entry age is between 0-55 years. Policy tenure is 15-30 years, and minimum sum assured depends on policy period and premium. Its maturity age is between 18 to 75 years.
HDFC Life Sampoorn Samridhi Plus
There are 4 payment options – monthly, quarterly, semi-annually or annually, entry age is between 30 days to 60 years. Policy tenure is 15-40 years, and minimum sum assured is INR 65,463. Its maturity age is between 18 to 75 years.
SBI Life Smart Bachat
There are 4 payment options – monthly, quarterly, semi-annually or annually, the entry age is between 8 to 50 years. Policy tenure is 10-25 years, and minimum sum assured is INR 1 Lakh. Its maturity age is up to 65 years.
Bajaj Allianz Save Assure Plan
There are 4 payment options – monthly, quarterly, semi-annually or annually, entry age is between 1 to 60 years. Policy tenure is 15 or 17 years, and minimum sum assured is INR 1 Lakh. Its maturity age is between 18-75 years.
Are You Eligible for Endowment Policy
Every endowment policy has separate eligibility criteria depending on the insurer. The common parameters that make you entitled for endowment policy are:
- Minimum age when you are purchasing a policy should be 0 years to 60 years;
- Maximum age when the policy matures should be between 18 years to 100 years
- The capacity to pay the amount of premium for the preferred policy
- Many insurers may want you to declare any existing illnesses when you choose a policy.
Riders for Endowment Policy
Riders are defined as additional benefits, which can be included in your insurance policy at the cost of a slightly higher premium. There are a various set of riders offered by different insurers for an endowment policy. Few most common riders are:
- Accidental death benefit: This provision will add the certain extra amount to the death benefit disbursement in event of accidental death of the policyholder, inside the residence or outside.
- Total permanent disability benefit: This rider keeps you protected if you are unable to resume work due to permanent disability. Even though you lose your source of income, this clause will ensure a continuous flow of sum assured and bonuses in installments over the duration of few years. Hence you will be able to run your family and meet daily needs during a crisis situation.
- Critical illness benefit: With this rider, you can go for treatment of severe diseases such as major organ transplant, serious heart ailments, cancer, paralysis, stroke, kidney failure, Alzheimer’s, or multiple sclerosis. The insurer has to provide you a lump sum amount to carry out the treatment. Few insurers also waive off the upcoming premiums in case the policyholder is diagnosed with any such critical ailment
- Premium waiver benefit: This rider ensures that you get a waiver in premium payment on the face of temporary or permanent disability or severe illness. The policyholder won’t be liable to pay premiums in the future while retaining any benefits associated with the policy.
Best Money Back Policies in India
LIC Money Back Policy
It’s a traditional participating endowment plan with money back facility. The minimum entry age is 13 years while the maximum age is 50 years. Policy tenure is 20 years, and minimum sum assured is INR 1 lakh. Its maturity age is 70 years. The death benefit includes sum assured plus bonuses regardless of the different survival benefits already paid to the policyholder. It also offers surrender benefits.
Bajaj Allianz Cash Assure
This is a traditional money back policy with 4 policy tenure options of 16, 20, 24, or 28 years. The minimum entry age is 0 years and maximum entry age is 54 years. The minimum sum assured is INR 1 lakh and maturity age is 18-70 years. This plan offers a periodic payout at stipulated intervals. The women policyholders get a special exclusive premium rate.
LIC Money Back Policy for Children
It’s a child plan with a policy tenure of 25 years. The minimum entry age is 0 years and maximum entry age is 12years. The minimum sum assured is INR 1 lakh and maturity age is 25 years. This is a participating policy with limited options for premium payment. When the policyholder completed 18 years, the policy matures post the policy term is completed. Any parent or grandparent can purchase this plan for children in the age group of 0 to 12 years.
Reliance Super Money Back Plan
This is a non-linked non-participating policy with life cover. The policy duration varies from 10, 20, 30, 40, or 50 years. The minimum entry age is 18 years and maximum entry age is 55 years. The minimum sum assured is INR 1 lakh and maturity age is 28-80 years. For this policy the premium paying term is half of the policy tenure. When the premium payment term comes to an end, loyalty add-ons are payable.
Birla Sun Life Bachat Money Back Plan
It’s a traditional non-participating money back policy with a policy tenure of 20 years. The minimum entry age is 13 years and the maximum entry age is 60 years. The minimum sum assured is 180 times your monthly base premium amount. This is a traditional plan that offers no bonus but only loyalty additions. The plan comes with a rider for double accident benefit. Once 15 years of policy is completed, loyalty additions keep on increasing every year.
Money back insurance plans are undoubtedly the smart way of managing your finances and plan future investment. But before you shortlist an appropriate plan, you must consider a few pros and cons to analyze the risks and benefits associated.
Advantages of Money Back Policy
These policies are good for those you want steady cash flow at periodic intervals. It’s also recommended as a solid back up plan for belligerent investors who invest huge sums in equities and commodities. A guaranteed payout post few years of investment makes them a desirable option over traditional insurance policies which only offer the money at maturity. Following are the advantages –
- Returns Accrue within a few years, you don’t have to wait long to reap the benefits of your investment
- An insured person receives a payout in 3 different ways – survival benefits, sum assured, and bonus. The survival benefits make money back policy the best choice as the value of money decreases over time. Hence the payout you receive in the initial years of your policy will be higher to the ones you receive by the end of policy tenure. Thus for money back plans the value of money is higher.
- The insured person receives the entire sum assured at maturity along with other survival benefits and bonus.
- A money back plan can only offer you multiple benefits of investment returns and life insurance cover. It’s an ideal choice for risk-averse investor who avoids ULIPs which provide limited coverage and high returns.
- The insured gets a revisionary bonus on the maturity of a money back plan, which significantly increases the overall payout sum. The policyholder is also entitled to a compound revisionary bonus, where a bonus of earlier year gets added to a bonus of the upcoming year. The insured may also be entitled to a final additional bonus.
- A money back plan is a safe and secure investment, unlike the investment in volatile equity and commodity market. It should part of every individual’s portfolio as it guards you against any income losses from other investment options. It also offers a sum assured to the nominee assigned by the policyholder in case of sudden demise.
- A money back policy is a great tax-saving option as it offers a tax deduction under section 80C of the Indian Income Tax Act. The maturity amount is tax exempted as long as the amount of sum assured is five times more than premium payment for the policy.
Riders with Money Back Policy
- Accident Benefit – The policyholder’s nominee receives the sum assured in event of accidental death of the insured.
- Critical Illness Benefit – In case the insured contracts a critical illness like coronary disease, major organ failure etc this rider provides a guaranteed sum for treating the ailment.
- Disability Benefit – This rider is helpful in case the insured is left disabled due to a major accident.
- Hospital Cash Benefit – It is helpful when you need any financial support during medical emergencies.
Term Rider – This is a death benefit, which is passed over to the insured’s nominee in case of premature demise of the policyholder.