Term Insurance Vs Money Back Policy

 

What is a term insurance policy?

 

Term insurance offers pure life insurance cover for a specified period during which, if the life assured passes away, the nominee or the beneficiaries receive a death benefit. However, if the life assured survives the specified policy term, there would be no payout on the policy maturity unless the return of premium term plan is selected which refunds the premiums paid.

Term insurance plans usually provide coverage for mortality risk and do not have any savings component making them typically more affordable and focused on financial protection of your loved ones.

 

Benefits of Term Insurance Policy

 

Some of the benefits of term insuranceare as follows -

 

1. Affordability

 

The premiums of term plans are generally lower compared to other types of life insurance.

 

2. High Coverage

 

Term plans offer substantial coverage to give you financial security at affordable premiums.

 

3. Simplicity

 

Term insurance is the simplest form of life insurance and is very easy to understand with straightforward terms.

 

4. Flexible Terms

 

Term plans offer the policyholder the flexibility to choose the policy term and premium payment frequency that fits their financial needs.

 

5. Peace of Mind

 

Term insurance provides the much-needed peace of mind that your loved ones are protected and financially secured even in your absence.

We need to understand how a money-back plan works before evaluating term insurance vs money back policy.

 

What is a money-back policy?

 

Money-Back Policy combines insurance coverage with savings benefits. It offers regular payouts (or "money-backs") at predefined intervals during the term of the policy, while also providing a death benefit to the beneficiaries. Money-back plans create a source of liquidity and help you save up for your financial goals.

 

Benefits of Money Back Policy

 

Some of the benefits of a money-back plan are as follows -

 

A. Regular Payouts

 

Money-back plans provide periodic payouts during the term of the policy.

 

B. Life Coverage

 

It also pays a death benefit to beneficiaries if the life assured passes away. Moreover, the death benefit is not reduced by the money back benefits already paid allowing your family to take benefits of the plan.

 

C. Maturity Benefit

 

Money-back policies also provide maturity benefits if the life assured s  urvives the term.

 

Difference between term insurance & money-back policy

 

Some of the primary differences between a term insurance and money-back policy is as follows¹ –

 

1. Type of policy

 

Term insurance plans are protection-oriented life insurance plans. They primarily aim to provide financial security against the risk of premature demise. Money back plans are savings-oriented life insurance plans which provide insurance coverage and also help you save for your financial goals.

 

2. Maturity benefit

 

Most term plans do not pay any benefit if the life assured survives the policy term. However, if you choose the return of premium term plan, you get the premiums paid during the policy term refunded on maturity.

Money-back plans usually have a maturity benefit as well, which is predefined at the beginning of the policy tenure. It is paid if the life assured survives the policy term.

 

3. Bonus additions

 

Term plans are not offered as participating life insurance plans. This means that they do not attract bonuses.

Money-back plans might attract bonus which are added to the policy benefits. The bonus additions enhance the death or maturity benefit of the policy.

 

4. Premium 

 

The premiums of term plans are low compared to money-back plans because of the scope of coverage offered.

 

Conclusion

 

Term plans and money-back plans are two different types of life insurance policies, each with a specific use. So, assess your financial needs and choose a suitable policy. A term plan is suitable for most individuals looking to create financial security for their loved ones in their absence. So, buying a term plan is important and recommended. On the other hand, a money-back plan is suitable if you want liquidity from your policy along with insurance coverage. So, analyse your financial needs and goals and then pick term insurance or money back policy. You can also buy both plans for a wider scope of coverage and enjoy the benefits of both.

 

FAQs

 

 

1. Can I add riders to both a term plan and a money-back policy?

 

Yes, you can add optional  riders to both the term plan or the money back policy at an additional premium cost.

 

2. Which plan is more suitable for family protection in case of my untimely death?

 

Both plans have an life cover component which provides a death benefit to your family in case of your premature demise. However, if you are looking only for financial protection for your family, a term insurance policy would be a suitable alternative.

 

3. How do the premiums differ between a term plan and a money-back policy?

 

Term plans are pure protection plans which cover premature death and usually don’t have a savings component. Hence, the premiums of term plans are generally lower than money back plans which not only provides life cover but also offers pay-out at specified intervals thereby offering a savings component.

Reference

• https://www.zeebiz.com/personal-finance/insurance/news-term-plan-vs-money-back-policy-which-is-a-better-option-stst-251464

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