We all wish to have a secure life for ourselves and our loved ones. Whether to choose groceries, street food, a house, or an insurance plan, we only look for safety and security. But like any other option, insurances have multiple choices for a policyholder. For instance, term plans and money-back plans.
So, the question arises: should you choose a term plan or a money-back plan? Let’s explore and find the better option for you.
Firstly, what is a Term plan and a Money-back plan?
Term Plan is a life insurance policy offering pure financial protection to the insured’s family in case of their untimely demise during the term.
On the other hand, a Money-Back Plan is a life insurance policy that provides periodic payouts during the term and a maturity benefit, combining insurance coverage with savings elements.
Purpose and Coverage
Term Plans:
Benefits and coverage of a term policy:
- Term insurance plans offer cost-effective coverage with high benefits.
- They allow policyholders to accumulate wealth for future financial goals.
- Some plans, like Term Return of Premium (TROP), offer a survival benefit if the insured outlives the policy term.
- Premium discounts are given to female policy buyers due to their longer life expectancy.
- The premium paid towards a term insurance plan is eligible for tax exemption under Section 80C of the Income Tax Act.
- The Term Return of Premium Plan also qualifies for tax exemption under Section 10(10D) of the Income Tax Act.
- A term policy also offers death benefits if the policyholder dies because of an accident, health issue, or natural calamity.
- Term plans offer higher coverage at lower costs, suitable for those with higher risk tolerance seeking pure protection.
Note: You can check the insurance coverage you need using this term plan calculator.
Money-back Plans:
- Benefits and coverage of a Money-back Plan:
- Money-back plans serve as insurance cover, ensuring a dignified life for family members even in the absence of the policyholder.
- With guaranteed returns, these plans have low-profile risk and are dependable investments.
- Money-back plans provide regular income within a few years of investing.
- They offer additional bonuses, increasing overall payouts to fund life goals.
- Policy premiums are tax-deductible under Section 80C, and the sum assured is tax-free under Section 10(10D) of the Income Tax Act.
- Money-back plans provide lower coverage with periodic payouts, making them suitable for individuals with lower risk tolerance seeking insurance with periodic liquidity needs.
Premium Payments and Duration
Term Policies usually have lower premiums since they provide pure life insurance coverage for a fixed tenure, making them more budget-friendly. They are suitable for individuals seeking affordable family protection in case of an untimely demise.
On the other hand, Money-back Plans have higher premiums due to their dual nature of insurance and savings. They offer flexible payment schedules, allowing policyholders to choose various premium payment terms. This can impact the budget, as policyholders may need to allocate more funds toward insurance coverage and savings components.
A detailed comparison between the two policies is stated below. Let’s have a look:
Comparison between Term Plan and Money-back Plan
| Term Plan | Money-back Plan | |
| Maturity Benefits | Term plans usually do not provide any maturity benefits, as they solely focus on providing a death benefit to the nominee in case of the insured’s demise during the policy term. | Money-back plans offer maturity benefits with periodic returns, giving policyholders a portion of the sum assured at regular intervals during the policy term. At the end of the policy term, the remaining sum assured is paid as a maturity benefit. |
| Surrender Value | Term plans do not offer a surrender value. | Money-back plans may offer it, allowing policyholders to terminate the policy prematurely and receive a portion of the premiums paid. |
| Suitability for Different Life Stages | Term plans are suitable for individuals in their early earning stages, providing affordable protection for their family’s financial security. | Money-back plans are ideal for individuals in the mid to later stages of life seeking insurance and savings benefits. |
| Survival Benefit | Certain insurers provide a survival benefit rider with the term insurance plan. | During the policy term, the insured receives periodic payouts, offering liquidity to meet short to medium-term financial needs. If the insured survives the policy term, they also receive the remaining sum assured as a maturity benefit. |
| Death Benefit | Term plans offer only death benefits, providing a lump sum payout to the nominee in case of the insured’s death during the policy term. | If the policyholder passes away, the nominee will receive both the guaranteed amount and any accrued bonuses, if applicable. |
Conclusion
Choosing between a term policy and a money-back plan depends on individual preferences and financial needs. Individuals with a tight budget may find term plans more appealing, as they offer essential life coverage at an affordable cost. However, money-back plans provide a balanced approach for those seeking insurance and periodic liquidity benefits but may require a higher financial commitment in terms of premiums. The choice depends on one’s financial capacity and specific needs. So, decide based on your risk tolerance, financial capacity, and specific life goals.
