Term Plan vs Money Back Policy: Which You Should Buy?

Written by : Knowledge Centre Team

2023-11-26

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Choosing the right life insurance policy is an essential decision that can significantly impact the financial security of your family in case of any unfortunate event. When it comes to investing in life insurance, there are two popular options: Term Plans and Money-back Policies. These policies have distinct features, benefits, and suitability that help in meeting specific financial goals and circumstances.

In this blog, you will delve into the details of both types of policies and discuss term insurance vs. money-back policy, comparing their key features. You will also explore the advantages that can help you decide which policy is better suited to meet your needs.

Also Read: Difference between Endowment Plans and Money Back Policies

Table of Content

0 1

Understanding a Term Plan

0 2

Benefits of Buying a Term Plan

0 3

Understanding Money-back Policy

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Benefits of Buying a Money-back Policy

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Term Insurance vs Money-back Policy: Interactive Comparison

Understanding a Term Plan

A term plan is an entirely pure life insurance policy that offers coverage for a particular term. It does not include any investment component, meaning there is no cash value or maturity benefit associated with it. This means that there is no payout or lump sum amount given to the insured if he survives the policy term.

However, there are some insurers like Canara HSBC Life Insurance that also offer term insurance with money-back benefits.

Benefits of Buying a Term Plan

High Coverage at Affordable Premiums
Term plans offer a high life coverage amount at relatively low premiums compared to other life insurance policies. This feature makes it an attractive option for those seeking substantial protection for their family's financial future
Simplicity and Transparency
These plans are straightforward and easy to understand. There are no complexities associated with investments, making it easier to grasp the policy's terms and conditions.
Pure Insurance Benefits
The primary goal of a term plan is to provide financial security to your beneficiaries in case of your untimely demise. It ensures your family can maintain their lifestyle and meet financial obligations even in your absence.
Flexibility
Term plans often come with flexible features, such as the option to add riders like critical illness or accidental death benefits to enhance the overall coverage.

Understanding Money-back Policy

A money-back policy is a type of life insurance policy that offers both insurance coverage and periodic returns during the policy term.

Benefits of Buying a Money-back Policy

Periodic Payouts: One of the key attractions of a money-back policy is that it provides regular payouts (survival benefits) at specific intervals during the policy term. These payouts can be used for various financial needs or goals, creating a sense of financial security.
Maturity Benefit: Unlike a term plan, a money-back policy typically offers a maturity benefit, which means that if the policy bearer outlives the policy term, they will acquire the sum assured along with any applicable bonuses or profits.
Savings and Insurance Combined: Money-back policies incorporate an element of savings or investment, allowing policyholders to build a corpus over time. It can be helpful for meeting future expenses or life events.
Tax Benefits: Both term plans and money-back policies offer tax benefits under the 80C Section of the ITA (Income Tax Act). Still, these policies may provide additional tax advantages on the returns received and the maturity amount.

Term Insurance vs Money-back Policy: Interactive Comparison

Although many insurance companies provide money-back term plans, specific differences exist between a term and a money-back plan. Look at the table given below:

Parameters	Term Plan	Money-back Policy
Purpose	The primary purpose of a term plan is to provide life coverage for a specific term or duration. It offers financial protection to your beneficiaries in case of your untimely demise during the policy term.	A money-back policy serves a dual purpose. It provides life coverage like a term plan. Still, it also offers periodic payouts (survival benefits) at specific intervals during the policy term, even if the policyholder survives the entire time.
Coverage and Maturity Benefits	It offers no maturity or survival benefit if the policyholder outlives the term. This plan only pays the death benefit to the nominees in case of the insured's death during the policy term.	Money-back plan offers both life coverage and maturity benefits. If the policy bearer survives the term, they receive the sum assured along with any applicable profits. Additionally, the policyholder also receives periodic survival benefits during the policy term.
Premiums	These plans generally have lower premiums compared to money-back policies. Since term plans do not include any investment component, the premiums are focused solely on providing life coverage.	Money-back policies tend to have higher premiums because a part of the premium goes towards the investment component, which funds the survival benefits and maturity payouts.
Investment Component	Term plans do not have an investment component. Hence, they do not generate any savings or returns apart from the death benefit if the policyholder passes away during the policy term.	It includes an investment component, usually in the form of a with-profits fund. This fund accumulates over the policy term, and the policyholder receives periodic payouts (survival benefits).
Tax Benefits	Both term plans and money-back policies offer tax benefits under Section 80C of the ITA for the premiums paid.	In addition to the tax benefits on premiums, these policies may provide extra tax advantages on the returns received and the maturity amount.

To help you understand the differences between the two policies more effectively, let's explore a few scenarios:

Scenario 1: Young Professionals with Limited Budgets

For young professionals with limited budgets, a term plan would be more beneficial. It offers maximum coverage at affordable premiums, ensuring their families are well-protected in case of unforeseen events.

Scenario 2: Individuals with Regular Financial Goals

A money-back policy might be more suitable if you have precise financial goals, such as buying a house or funding your child's education. The periodic payouts can serve as a source of funds to meet these goals while still providing life coverage.

Scenario 3: High-income Earners with Tax-saving Goals

High-income earners looking for tax-saving options might find money-back policies appealing due to the added tax benefits on returns and maturity amounts. However, they need to be aware that the returns might not be as significant as other investment options.

Scenario 4: Long-term Financial Protection

A term plan remains the clear winner for those seeking long-term financial protection without any investment element. It offers a straightforward and cost-effective way to secure the future of your dependents.

To Sum Up

Deciding between a term plan and a money-back policy depends on your financial goals, risk appetite, and the level of protection you want to provide for your family. If you're going to buy a term policy, then Canara HSBC Life Insurance iSelect Smart360 Term Plan can be your best option. From a whole life cover till the age of 99 to steady income benefits, this plan offers comprehensive coverage, making it an ideal choice.

Remember to assess your needs carefully, consult a financial advisor if necessary, and choose a policy that aligns with your financial objectives and priorities. Both policies have their merits, but ultimately, the "better" policy will be the one that suits your unique requirements and helps you achieve your financial goals with peace of mind.

FAQ

When you buy a term insurance policy, you choose a sum assured, which is the amount of money that will be paid out to your beneficiaries if you die during the policy term. You also choose a policy term, which is the length of time that the policy will be in effect.

If you pass away during the policy duration, your beneficiaries will receive the sum assured. However, if you outlive the policy term, you will not receive any money from the policy.

Term insurance is a good option for anyone who wants to offer financial security for their family in the event of their death. This includes people who have dependents, such as children or a spouse. It can also be a good option for people who have debt, such as a mortgage or a car loan.

The best term plan with money-back will be a term policy that can offer a guaranteed return of premiums at regular intervals. This means that if you outlive the policy term, you will get a lump sum amount, which can be used for any purpose you choose.

No, term insurance plans do not offer maturity benefits. Term insurance plans are designed to provide financial protection to your family in the event of your death. If you outlive the policy period, you will not receive any money from the policy.