Term Life Insurance v/s Money Back Life Insurance

A question that often crosses our minds is whether to buy a term insurance plan or a plan that has both the investment and insurance component like endowment plans. There is always the dilemma on whether to opt for pure risk cover or to go for a plan that provides regular payouts along with protection. Both the plans i.e. term insurance policy and money back life insurance, come with a set of benefits and drawbacks. So, we discuss the various points on term life insurance policy and money back life insurance to help you choose better.

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SEE ALSO: What is the Life Insurance Policy?

Term Life Insurance v/s Money Back Life Insurance

Term Life Insurance:

A term insurance policy is a life insurance plan which provides financial protection for a specified period of time. The policy ensures high sum assured at a nominal premium. The sum assured is paid to the nominee in case of demise of the policy holder, within the policy term. Term plans are designed to secure the family of the insured in case of unfortunate demise of the policy holder, within the tenure. In case the policy holder survives the specified term of the policy, nothing is paid back.

 Money Back Life Insurance Plan:

The money back life insurance policy is a type of endowment plan that offers life cover to the insured for a defined term. This policy gives money back at regular intervals during the term of the policy which is termed as the survival benefits. In case the insured dies before the maturity of the plan, the full sum assured is given to the nominee, irrespective of the survival benefits already paid.

SEE ALSO: How Much Term Life Insurance Is Required?

Term Life Insurance v/s Money Back Life Insurance:

Below outlined is a summary of term life insurance vis-a-vis money back life insurance:  

Coverage: the term insurance plan is a pure form of life cover that provides a high sum assured at a low premium. The money back life insurance provides a much lesser sum assured for the same premium. On death of the insured, the term insurance plan pays a lump sum amount that helps the family of the insured see off all liabilities and maintain financial stability.

The money back policy pays a sum assured along with the accrued bonus, in case of death of the insured. This sum assured is much lower when compared to the term insurance policy.

• Return on investment: The term insurance policies will not pay anything in case the insured survives the term of the policy, but the money back life insurance plan returns a fixed percentage of the sum assured as money back payments at specific time intervals within the term of the policy, if the policyholder survives. In case of a term insurance plan, there are no survival benefits, but in case of a money back life insurance policy, the insured gets some returns on the money he invests.
• Tax savings: the premiums paid on both the term plan and money back plan are liable for income tax exemption up to Rs 1.5 Lakh under section 80C of the income tax act.  No tax is charged on maturity benefits, survival benefit or death benefit under Section 10(10 D) of the Income Tax Act.

SEE ALSO: How To Select Best Life Insurance Plan According To Income?

What will you choose?

A term insurance plan is a pure protection plan where the sum assured is high compared to premiums paid. Though there is no investment component in the term insurance policy, you get financial security for your family. The sum assured in money back plans are not sufficient to provide financial protection to the dependents in the absence of the breadwinner of the family. Term insurance plans are the best option for people who are looking for high cover within a budget.

Term insurance plans can be bought by individuals who have just started working and have dependents. Those who have met protection needs and have extra cash to invest, can avail money back plans to meet investment goals.

Checklist to help you differentiate between term life insurance and money back life insurance:

Term life insurance	Money back life insurance
Provides a high sum assured at a nominal premium. Offers high sum assured to the nominee on death of the insured during the policy term. If the insured survives the policy term, no money is paid.	A type of endowment policy that has both investment and insurance component. Offers survival benefits at regular intervals. It pays the full sum assured in case of death of the insured during the policy term. On survival, pays a portion of the sum assured along with bonus.
Does not offer any survival benefits to the policy holder.	Provides survival benefits as well as death benefit to the insured.
Insured can get tax benefits for the premium paid towards the term insurance plans under Section 80C of the income tax act	Insured can get tax benefits for the premium paid towards the money back life insurance under section 80C of the income tax act

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