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Financial experts always recommend weighing your options carefully before making investments. As monetary requirements change from one person to the next, financial institutions have curated different investment avenues to suit diversified needs.
Regardless of where you choose to invest your money, term insurance is considered to be one of the most valuable options to secure the financial future of your loved ones. This is because a term plan offers a high sum assured for a reasonable premium. This premium is lowered further if one chooses to buy a term plan online.
However, because term insurance is a pure life cover with no returns upon the survival of the policy term, several people consider opting for a moneyback policy.
To cater to the needs of insurance seekers, insurance providers have curated term insurance with a return on the premium. In this policy, the premiums paid towards the term insurance are returned if the insured member survives the term.
Before we choose between moneyback policy vs term insurance, it is important to know what each of these policies promises.
A term plan is a pure life insurance cover that provides financial protection to your loved ones if something were to happen to you. This means that if the policyholder was to die while the policy is still active, the surviving beneficiaries receive a death benefit. For this service, an insurance seeker is required to make regular premium payments to their respective insurance provider until the chosen duration of the term. The premium amount is decided based on your age and health at the time of the policy purchase. When you buy a term plan online, you can save more on the premium amount. As it is a pure life insurance product, there is no payout in the end if the policyholder survives the term unless you invest in term insurance with a return of premiums.
A money back policy is a variant of an endowment plan that combines insurance with investment. At periodic intervals, the policyholder gets back a predetermined sum assured, which is the survival benefit. The final payout is made upon the conclusion of the policy term.
Along with the survival benefit, the policyholder also receives bonuses accrued over the policy term, which is also paid at the time of the final payout. In the unfortunate event of the policyholder’s death, while the policy is still active, the nominees receive a death benefit along with the bonuses accrued during the policy term.
Additionally, no survival benefits formerly paid to the policyholder are deducted from the death benefit paid to the beneficiaries.
To analyse moneyback policy vs term insurance a potential investor needs to concern themselves with the following three things:-
One of the most coveted benefits of term insurance is that it provides a significantly high sum assured for a negligible premium amount. To optimise your savings, it is advisable to buy a term plan online. The coverage amount for a term plan is distinctly higher as compared to that of a moneyback policy for the same premium payable.
This means that if, owing to an unfortunate eventuality, the policyholder were to pass away while the policy is still active, the term plan will pay the nominees a greater amount as the death benefit as compared to a Moneyback policy, therefore, has a significant drawback when it comes to the death benefit.
As mentioned earlier, a term plan is a pure life insurance product, and so, it does not offer any return upon maturity. This means that if the policyholder survives the term, no money is returned to them or the nominees. This is unless a person has opted for term insurance with return of premium policy wherein the premiums that were paid are returned to the insurance holder upon policy maturity.
However, it is important to note that in term insurance with the money-back feature, the premiums charged are much higher as compared to regular term insurance. Moreover, this money garners no interest. Therefore, it is advisable that instead of opting for term insurance with moneyback, choose a simple term plan and invest in other wealth-generating instruments.
A moneyback policy has an investment component associated with it. Upon survival of a specified term in a moneyback policy, a certain percentage of the sum assured is provided as payouts. In addition to this, the policyholder is also eligible for certain bonuses accrued over their moneyback policy from time to time.
These cumulative bonuses that are collected through the tenure of the policy are returned at the time of the final instalment towards the moneyback policy. In the event of the policyholder’s death, these bonuses are also transferred to the surviving beneficiaries.
Moneyback policies, therefore, have a better return on investment as compared to a regular term plan. The survival benefits of a moneyback policy can help attain the short-term goals of an individual, such as funding for a child’s higher education or planning a family vacation.
As both term insurance and moneyback policy fall under the category of insurance products, both these policies have equal tax-saving benefits. Under Section 80C and Section 10(10D) of the Indian Income Tax Act, 1961, both these policies are eligible for an exemption.
As per Section 80C, an exemption of up to ₹1.5 lakhs is permitted towards the premiums of the term plan or moneyback policy. Under Section 10(10D), the proceeds from insurance policies, whether they are a death benefit, maturity benefit, or survival benefit, are all exempted from taxes.
An additional exemption of ₹25,000 under Section 80D is permitted towards health insurance-based riders#. So, if a policyholder opts for riders# such as critical illness along with their basic term plan, they are eligible for the exemption under Section 80D.
Both term insurance, as well as moneyback insurance have their benefits and drawbacks. While term insurance with a return on premiums will return your invested amount, it will have accrued no profit over the course of the tenure.
Contrarily, in a money back plan, the investor will receive timely payments; however, these alone cannot finance the long-term goals. Considering these two points, it is advisable to invest in both term insurance as well as a moneyback policy for future as well as present financial security.
Tata AIA Life Insurance Company offers term insurance as well as endowment savings insurance plans. Tata AIA Life Insurance term plan aims to protect the smile of your loved ones through a range of wholesome products. You can also browse through the Tata AIA savings solutions for a variety of life insurance savings plans that offer attractive returns on investment, along with life cover.
Some of the most celebrated features of both types of plans include flexible premium payment options, choice of riders#, and discounts on high sum assured.
Check out the Tata AIA website to know more.
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*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implication mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
#Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.
Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.