Term Life Plan vs Money Back Plan: Which One Should You Choose?

What is a Term Life Plan?

A Term Life Plan is a pure protection plan that offers a high life cover for an affordable premium. If the life assured passes away during the policy term, the nominee receives the sum assured as a death benefit. However, if the life assured survives the term, there is no maturity or survival benefit.

Key Features:

• Offers high life cover at low premiums.
• No survival or maturity benefit, unless one opts for term plan with return of premium (TROP).
• Option to enhance coverage through riders (accidental death benefit rider, critical illness rider, etc.).

Example:

Let’s say a 30-year-old buys a term plan of ₹1 crore cover for 30 years. If the life assured dies during the term, the nominee will receive ₹1 crore. If the life assured survives, no payout is made, unless the plan has a feature of return of premium.

What is a Money Back Plan?

A Money Back Plan is a type of life insurance that offers life cover along with periodic payouts during the policy term. These payouts are called “survival benefits”, which are a percentage of the sum assured. At the end of the policy term, the remaining sum assured and bonuses (if declared ) are paid as maturity benefits. In case of the life assured’s death during the term, the full sum assured is paid to the nominee, regardless of previous payouts.

Key Features:

• Provides life cover plus periodic money-back payouts
• Maturity benefits and bonuses (if declared).
• Useful for people looking for regular returns along with life insurance.
• Coverage can be enhanced with add on riders.

Example:

If you purchase a 20-year money back plan with ₹10 lakh sum assured:

• You may receive 20% of the sum assured every 5 years (i.e., ₹2 lakh at the end of the 5th, 10th, and 15th year).
• The remaining ₹4 lakh plus any bonus (if declared) is paid at maturity.
• In case of death, the nominee receives the full ₹10 lakh irrespective of the payouts already made.

Term Life Plan vs Money Back Plan: A Detailed Comparison

When Should You Choose a Term Life Plan?

You should consider a Term Life Plan if:

• You want high life cover at an affordable cost.
• You’re the primary earning member of your family and want to secure your nominee(s) financial future in your absence.
• You’re looking for a simple and cost-effective insurance solution.
• To ensure your dependents can pay off your debts and liabilities, if any (eg,: Home Loan) in your absence

Term plans are best suited for people in their 20s to 40s who want to ensure their family’s lifestyle and goals are protected if something unexpected happens.

When Should You Choose a Money Back Plan?

You should consider a Money Back Plan if:

• You prefer a plan that offers life cover as well as guaranteed^* periodic returns.
• You have short-term financial needs, such as funding a child’s education or planning travel expenses.
• You like the idea of receiving some part of your money during the policy term instead of waiting until the end.
• You’re not very market-savvy and prefer predictable, stable returns.
• Money back plans are suitable for conservative investors who value safety and regular income more than high returns.

Final Thoughts

Both Term Life Plans and Money Back Plans serve different purposes. While a Term Plan offers pure protection, a Money Back Plan offers protection along with savings. The key is to assess your financial goals, budget, and risk comfort before choosing.

If you are unsure, speak to a trusted insurance advisor or explore wide range of plans to find the one that fits your life stage and goals best.