Whenlooking for investment options in India,most people consider traditional life insurance policies to create acorpus of funds. But what happens when the tenure is over? A financialemergency can arise at any time that requires funds to tackle it. But aconventional life insurance plan will only help when the policyholder passeswithin the policy term.
Even though some of these plans may allow you to take a loan againstyour policy, but what if it is not enough? The good news is that there is aplan that gives you the benefit of a lumpsum amount during the policy tenure.It is known as the money back policy.
A moneyback plan will provide you the liquidity you need to stay afloat duringfinancial emergencies. In this article, we will discuss how the plan helps andwhy you need to add it to your financial portfolio.
What isa Money Back Policy?
A moneyback policy, as the name suggests, offers a certain percentage of the sumassured at certain intervals as the survival benefit. These benefits will bepaid to you during the tenure and the remaining balance is paid at the time ofmaturity along with vested bonuses. However, should something happen to youduring the tenure, the full sum assured will be paid regardless of the survivalbenefits that have already been released. Here are some of its features:
- Thesurvival benefit is calculated as a percentage of the sum assured in yourpolicy document. These benefits are paid at a regular fixed interval. However,the pay-out structure and the percentage of sum assured varies from plan toplan.
- Atthe time of maturity, the maturity benefit minus the survival benefits alreadypaid will be paid to the policyholder.
- Theseplans are participating plans that are usually supplemented with bonus as perthe plan’s performance. The accrued bonuses are paid upon death or maturity.
- Youcan also supplement your money-back policy with riders. Rider benefits are paidas a lumpsum amount when the contingency it covers occurs during the policyperiod.
Benefitsof a Money Back Policy
There areseveral benefits of investing in a money back plan, such as death benefit,survival benefit, and maturity benefit. This amount is paid along with bonusaccrued during the policy term. This bonus will depend on the insurer’sperformance during the policy duration. Therefore, it is important to look atall the components that make up the policy in order to choose the best one.
Let usdiscuss the benefits in detail:
- SurvivalBenefits
Duringthe course of the policy, the money will be paid to the policyholder afterevery few years as determined by the policy document at the time of investment.You start getting paid after some years of the start of the policy and continuetill it reaches maturity.
- DeathBenefits
Thepolicy nominee will get the death benefit if the insured person passes awayduring the policy duration. The amount will include the policy sum assured aswell as the bonus accumulated until that time. However, it does not include thesurvival benefit as they are only offered if the insured person outlives theterm.
- MaturityBenefit
Theinsured person will receive this benefit from their money back plan uponmaturity. They will receive the sum assured that the policyholder chooses atthe start of their policy along with the reversionary benefits accrued duringthe policy tenure. The latter will depend on the insurance company’sperformance. Therefore, it is important to invest in a robust insurer with asolid track record.
- Liquidity
Theliquidity feature of the money back policy makes it unique and a preferable investment plan. The survival benefits paidduring the policy duration offer you liquidity to meet your short-term goalsand also plan your finances to fulfil financial requirements at various lifestages.
- Risk-FreeReturn
Ifyou prefer risk-free investments with money back guarantees, then money backplan is the perfect option for you. There is no risk involved and you receiveassured returns.
Wheneverything is going smooth, we don't consider investing our money ininstruments that lock our liquidity away for many years. But when you are facedwith a financial emergency, it is these instruments that cometo your rescue.
Financialexperts recommend building a corpus of funds through investment instruments,like money back policy, that help you manage your finances and also give youthe peace of mind that your money is in safe hands.