A Money Back Policy is a type of life insurance that provides the dual benefit of both investment & insurance. It involves the provision of life coverage, which offers financial protection in the case of an unfortunate incident. Additionally, it also allows an investor to receive returns at a regular interval of time during the tenure of the plan.
This plan involves paying back a certain amount or percentage of the sum assured to the policyholder at a regular interval. If the policyholder survives throughout the policy tenure, they will get the remaining amount of the sum assured. But, on the contrary, if the policyholder dies during the policy tenure, the full amount of the sum assured will be paid back to the nominee, irrespective of the fact that the survival benefits have already been paid.
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How to Choose the Best Money Back Plan for your Child
While choosing various plans, it is important to select the Best Child Insurance Plan. Let us now see how a money-back plan for a child helps achieve the long-term financial objectives. This ensures the fulfilment of the child’s future requirements, securing the financial future of your child. Hence, evaluate the following factors while selecting a money-back plan for your child:
Payout Schedule & Alignment with Goals:
Check whether the payout schedule is in alignment with the child’s future milestones or not.
Premium Affordability:
Select the premium amount that best fits your budget, as missing premiums are not considered to be beneficial.
Coverage Amount:
Parents should confirm whether the sum assured is enough to cover the education costs, considering the inflation factor. The education costs rise by 10-12% every year here in India.
Flexibility & Riders:
Check if the additional riders option is available or not, such as accidental death, critical illness, premium waiver, etc. Critical riders enhance the coverage of the current plan at some added costs.
Insurer’s Claim Settlement Ratio:
An investor should always check the claim settlement ratio to check their track record. The higher the claim settlement ratio, the higher the chances are for claims to get settled.
Customisation Options:
Some insurance companies offer flexibility to customise the plan, such as extended maturity benefits, partial withdrawals, etc.
Features of Money Back Policy
Provided are the features of a money-back plan for your child:
Survival Benefits
These are the payouts made periodically throughout the policy tenure, which are usually a fixed percentage of the sum assured.
Death Benefits
In the case of an unfortunate death of the policyholder during the policy tenure, the nominee receives the full amount of the sum assured. This amount is received irrespective of the fact that survival benefits have already been granted.
Maturity Benefits
If in case the policyholder survives throughout the policy tenure, he/ she will receive the remaining amount of sum assured (once the survival benefits are deducted), along with the amount of bonuses or additional benefits, if any.
Bonus
There may be some instances of accumulated bonuses, which may be the share of profits earned by the insurance companies. These get added to the total payouts that are to be received by the policyholder.
Benefits of a Child Money Back Plan
The following are the benefits of a child’s money-back plan:
Assured Returns
This plan is considered to be the safest option as it offers assured returns at the time of maturity. This plan best suits those investors who have a low-risk tolerance level, & hence is considered to be the safest plan for parents considering a Child Saving Plan.
Tax Benefits
Under this plan, an investor is eligible for a tax deduction on the amount of premium paid u/s 80C up to INR 1.5 lakhs. Additionally, the maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
Flexibility
This plan offers flexibility in terms of payout options, which include monthly, annual, or a lump sum. This plan also offers flexibility in premium paying terms, i.e. an investor can make premium payments at their own convenience via regular pay, limited pay, or single pay.
Additional Riders
This plan comes with a feature of additional riders that enhances the coverage at an added cost with increased protection. It includes total permanent disability riders, death benefit riders, critical illness riders, waiver of premium riders, etc.
Regular Payouts
This plan offers flexibility in receiving payouts at some fixed intervals of time, letting an investor meet the child’s future financial objectives, such as the child’s higher education, marriage, business startups, etc.
Life Insurance Coverage
These plans offer financial security to the child, letting parents secure their financial future in case of the sudden demise of the parents.
Earn Bonuses
At the end of each year, this plan offers cash bonuses, which include a final additional bonus or revisionary bonus. This bonus accrues when the policy term ends & the vested amount of the bonus is payable until death or maturity, whichever may be earlier.
Disadvantages of a Money Back Plan for a Child
Provided are the disadvantages of a money-back plan for a child:
Lower Returns vs. Market-Linked Plans:
These plans offer a lower amount of returns in comparison to SIPs, ULIPs, & equity mutual funds.
Liquidity Constraints:
This plan is less flexible as premature withdrawals are subject to certain terms & conditions, in comparison to savings or fixed deposits.
Higher Premiums:
These plans offer dual benefits of insurance & investments, hence charge a higher amount of premium when compared with pure protection plans.
Inflation Risk:
The assured returns may not be able to align themselves with inflation due to rising educational costs.
Conclusion
A money-back plan is a type of life insurance plan that involves receipt of payments by the policyholder throughout the policy tenure periodically, in addition to the death benefits. This plan best suits those individuals seeking insurance protection & saving benefits, ensuring liquidity & financial security. Whether to opt for this plan or not depends on your financial objectives, risk tolerance level, investment horizon & need for savings.
