Life is uncertain and unpredictable. You never know what is in store for you in the future.Therefore, doing financial planning for the future of your loved ones should be your topmost priority.
You can start by purchasing a life insurance policy, as it provides financial security to your family from life’s uncertainties. There are many types of life insurance plans available in the market today. Therefore, selecting the best plan to meet your family’s financial aspirations when you are no longer around is recommended. However, you may get confused at a certain point when narrowing down the best insurance plan for your needs. Term insurance plans and the money-back policy are two popular insurance plans where people have confusion. Let us understand what term insurance is and how it is different from a money-back policy.
What is a term plan?
Term insurance is the purest form of life insurance plan that provides life cover to the policyholder for a specific period. One of the significant advantages of investing in term insurance plans is that it offers a high sum assured at a nominal rate. In the case of a term insurance plan, if the policyholder passes away within the term of the policy, then the insurer is liable to pay death benefits to the nominee of the policy. If you outlive the policy’s tenure, you are not entitled to receive any maturity benefit.
What is a money-back policy?
A money-back policy is a type of endowment plan. Here, the policyholder will get a life cover for a specific tenure. The policyholder can reap the benefits of life cover and earn returns on a regular interval. If any untoward incident occurs, the policyholder’s nominee will receive death benefits and bonuses accumulated to date irrespective of the amount that the policyholder had received as a survival benefit.
Differences between term insurance plans and money-back plan
To select the best policy as per your requirements, it is necessary to understand the contradictory points between the two life insurance plans.
- Life cover
Term insurance plans in India provide a better life cover than the money-back policy at a reasonable premium. The sum assured of the latter is comparatively lower for the same premium. The insurer is liable to pay the sum assured to the policyholder’s nominee in case the policyholder dies within the tenure of the policy. Conversely, the nominee of the money-back plan will receive death benefits and accrued bonuses.
- Returns on investment
Term insurance does not provide any returns on investment on survival. On the contrary, the policyholder of a money-back plan will receive a specific percentage ofthe sum assured at regular intervals.
- Tax benefits
Both the type of life insurance plans offers tax deductions. The amount paid by the policyholder towards the premium of the policy is exempt from tax. The maximum permissible limit to claim an exemption is INR 1.5 lakh per annum under section 80C of the Income Tax Act, 1961. Besides this, the amount received as death or survival benefit is tax-free under section 10(10D) of the same Act.
Which plan is more suitable?
Before investing in either of the life insurance plans, it is essential to note your financial goals and household expenses. A term plan will only provide life cover and is more of a protection plan. In this plan, you can avail of a high sum assured by paying pocket-friendly premiums throughout the tenure. If you are looking for returns on investments from a life insurance plan, you can invest in money-back plans. If you already have a protection plan and can further invest, then you can consider money-back plans, as they can help you meet your long term financial goals.