Which Policy is Better: Term Plan or Money Back Policy?

Term Insurance Plans and Money Back Policies are two different kinds of insurance policies provided by insurance providers, including banks and insurance companies. Each of these has its advantages, disadvantages, and tax benefits.

When deciding between two or more insurance policies, knowing the difference in features and benefits is a must. Since both term insurance and money-back plans have similar benefits, many people get confused and find it challenging to choose the right product, a money-back policy v/s term insurance. To help you understand both products, this article highlights the differences between the features of each.

What are a Term Plan and a Money-back Policy?

A term insurance plan is a plan that provides financial security to your family and other dependents in case an unfortunate event happens to you during the policy's tenure.

It is a type of life insurance plan that you can use to secure your family's future if you can no longer provide for them. This plan can be bought and renewed at a nominal premium, and the sum assured will be paid out to your family directly.

Also Read - Term Plan Meaning

On the other hand, a Money Back Policy is an insurance policy that provides life cover for a specific term. The policy also presents monetary returns at regular intervals that are paid directly to the insurance holder.

Difference between a Term Insurance and Money Back Policy

While both these plans provide life insurance benefits, there are some differences in terms and money back policy. These differences make it essential to know the details of the chosen insurance plan before making a decision.

To help you sort through these differences, we've created a list comparing money-back policy v/s term insurance based on the following factors.

1. Coverage

Term plans offer return of premium if the policyholder survives the policy term. Money-back policies can be considered as guaranteed income plans.

However, in case of death, the family members of a money-back policyholder will receive the sum assured, interests and bonuses. Term plans guarantee only the sum assured in the policy, without any interest.

2. Return on Investment

If you survive the term plan's tenure, you will not receive any monetary benefit. You will also not receive the sum assured under the policy. However, if you survive the term of a money-back policy, you will receive a lump sum payout of the sum guaranteed.

3. Financial Support

Money-Back Policies provide returns at regular intervals. This amount can therefore get utilised to support your family's expenses during the money. However, since term plans do not render any payout during the tenure, you will not receive any monetary support during the policy's tenure.

4. Tax Benefits

The significant similarity in money back policy v/s term insurance is that both policies provide tax benefits. Under section 80C of the Income Tax Act of 1961, the premium paid for any life insurance policies can be exempt from taxation. The maximum exemption amount for such policies is INR 1.5 Lakh.

5. Cancellations

A term plan gets cancelled automatically if the premium is not paid on the due date, and you will not receive any payouts. However, you can cancel the policy in a money-back policy, and you may receive the sum assured at a nominal fee.

After looking at the difference between term insurance and money back policy, it is easy to understand that both policies have their advantages. However, according to various financial experts, a term plan is better than a money-back policy since it provides a higher sum assured.

If you're looking to purchase an insurance plan with extensive benefits to safeguard the future of your family and dependents, always choose a good term plan like the iSelect StarTerm Plan by Canara HSBC. Some of the best features of these plans are:

A. Additional covers like accidental death benefit, child support benefit, accident total, and Permanent Disability Benefit.
B. A spouse can be added to the same Term Plan at discount premium rates.
C. Multiple premium payment options.

Term Plans have two different payment options. The nominee can opt for a lump sum payout of the sum assured at the end of the term or opt for staggered payment. The staggered payment can get done as a monthly allowance directly in the nominee's bank account. Term Plans have a nominal premium. Therefore, with a minimum monthly fee, you can renew an assured sum guaranteed to help your family in the future. Insurance providers like Canara HSBC Life Insurance provide various riders and top-ups that can get added to the basic Term Plan. These include an accidental death advantage rider, a permanent disability rider, etc. These riders render complete protection in case of death and disability.

The person insured under the Money Back Policy will receive regular, agreed-upon returns at regular intervals. If the policyholder survives the tenure of the policy, they will receive the whole amount assured. If an unfortunate event happens to the policyholder during the policy's tenure, the nominee will receive the sum assured by the policy. The final amount will also include all bonuses and interests that the sum has gathered during the time. The Money Back Plan is the perfect policy for those looking for low-risk plans with high liquidity. Families can use the returns provided in the money-back policy to plan their finances.

So what are you waiting for? Get term insurance today!