Term insurance vs. money-back policies: Which is better for assured returns?

It is very intimidating when one tries to find a suitable life insurance plan in terms of balancing protection and returns. Two options come in this field that one has to consider: term insurance and money-back policies. Term insurance is pure protection, whereas money-back policies have life insurance combined with assured returns at regular intervals. This blog will guide you through the term insurance vs money back policy comparison in order to decide which one is best for you.

Understanding Term Insurance

Term insurance is a simple and inexpensive form of life insurance product with the objective of providing security to your family in case something untoward happens to you. It gives a high sum assured at very affordable rates, so that your dear ones are well taken care of even in your absence. It does not have any survival or maturity benefit.

Key Features of Term Insurance:

Low Premiums: Among all the life insurance plans, term policies are the most cost-effective.
High Coverage: For instance, a policy of 75 lakhs for term insurance can be secured at a very low cost.
Flexible Riders: Rider benefits like critical illness rider or accidental death rider, etc. can be chosen to increase the policy coverage.
Customized Options: Special plans like term insurance for smokers are designed especially for specific needs, offering unique health profiles.

Understanding Money-Back Policies

Money back policies are the life insurance plans that give protection with regular pay-out during the term of the policy. They are specifically tailored for individuals who require assured returns and life insurance coverage. When the policyholder dies, the nominee receives the amount assured irrespective of the payout already made.

Key Features of Money-Back Policies

Periodic Pay-out: A percentage of the amount assured is received by the policyholders at regular intervals.
Guaranteed Returns: The maturity benefit contains the balance sum assured along with all the applicable bonuses.
Expensive Premiums: Such policies are highly costlier compared to term insurance.
Dual Benefits: Money-back policies contain a savings feature coupled with an insurance feature.

Term Insurance Vs Money-Back Policy: A Comprehensive Comparison

Premium Prices:

Term insurance is highly cost-effective. A 75 lakhs term insurance policy can be bought at a fraction of the cost of a money-back policy with the same sum assured.

Money-back policies command higher premiums due to the guaranteed returns component.

Coverage Amount:

Term insurance covers more, which means huge financial protection for your family.

Money-back policies are usually lower since a chunk of the premiums is reserved for guaranteed payouts.

Investment Returns:

Term insurance does not have maturity or survival benefits; it only provides protection.

Money-back policies give regular returns and a sum amount at maturity, thus guaranteeing a return on investment.

Purpose:

Term insurance is ideal for those who seek pure financial protection for their families.

Money-back policies are suitable for individuals who wish to combine life insurance with savings and guaranteed returns.

Flexibility:

Term insurance offers flexible riders like critical illness or waiver of premium, so it is very flexible.

Money-back policies have limited flexibility in terms of add-ons and customization.

Tax Benefits:

Both plans offer tax benefits under Section 80C for premiums paid and Section 10(10D) for payouts.

Term Plan Vs Money Back Policy

Risk Coverage: Term plans focus solely on risk coverage, while money-back policies combine risk coverage with a savings component.
Payout Structure: The payout of term insurance is given as a lump sum in the form of a death benefit, while money-back policies offer periodical payouts during the term of the policy and maturity benefit.
Cost: Term insurance is cheaper compared to money-back policies and thus accessible to people who are tight on their pocket.

Who Should Buy Term Insurance?

Term insurance should be opted for by:

Those who want financial security for their family.
Looking for low-cost coverage. Even a 75 lakhs term insurance plan is quite affordable.
Want to enrich their policy with riders like critical illness coverage.
Have dependents requiring a high degree of financial safety.

Who Should Consider Money-Back Policies?

Money-back policies are more suited to the needs of individuals who:

Require guaranteed returns during the policy term
Require both savings and insurance.
Prefer periodic pay-outs to achieve financial objectives, such as children's education or other milestones.
Comfortable paying more for the premium to get the dual benefit of cover and savings.

Making the Right Choice

When deciding between term insurance vs money back policy, consider your financial priorities, life stage, and risk appetite. Here are some questions to guide your decision:

What is Your Primary Goal?

If your primary objective is to protect your family's finances to the fullest, then term insurance is the better choice. If you want to save while enjoying insurance coverage, then a money-back policy might be more suitable.

Can You Afford Higher Premiums?

Term insurance is cheaper, and thus it is ideal for those with limited budgets. Money-back policies require a higher financial commitment.

Do You Need Returns on Investment?

Term insurance focuses solely on protection with no returns. Money-back policies give periodic and maturity payouts, thereby ensuring returns.

Conclusion

The choice between term insurance vs money back policy is purely dependent on your personal needs and financial objectives. Term insurance is pure protection at a low cost and is suitable for securing the future of your family. On the other hand, money-back policies are for those who are looking for a combination of insurance and savings with assured returns.

Understanding the difference between term plan vs money back policy is essential to make an informed choice. While term insurance, such as 75 lakhs term insurance, provides extensive coverage, money-back policies deliver periodic financial support and maturity benefits. Assess your priorities and financial capabilities to choose the plan that aligns with your life goals and offers peace of mind.

Also Read: Term insurance vs. Whole life insurance: Which is better?