How to Choose Between a Money Back Policy and a Term Insurance Plan for Your Family’s Future?

When planning for your family’s future, selecting the correct insurance plan is critical. In India, two popular choices are typically mentioned: the money-back policy and the term insurance plan. Both offer distinct qualities and advantages, but judging which is superior might be difficult. A money-back policy provides periodic payouts, but a term insurance plan provides extensive coverage for a modest price. So, how do you make the appropriate decision? Let’s break it down in simple words so you can decide which one is best for your family’s requirements.

18 points to help you choose 

1. Coverage Needs: A term insurance plan provides high life cover at a low premium, ensuring financial protection for your family in case of an untimely demise. A money-back policy offers life cover too but with lower coverage compared to term plans.

2. Premium Costs: Term insurance plans are relatively cheaper since they attract smaller premiums. In as much as we are discussing life insurance, the best option in as much as cost control is concerned is term insurance. A money-back policy has higher premiums because of the bonuses that are given during the period of the policy.

3. Investment Return: Money-back policies provide maturity benefits in instalments over the policy period; they can be useful for future expenses. Term insurance does not offer any payout; it is an insurance product, through which one protects his/her family.

4. Financial Goals: If the primary objective of the policyholder is to build wealth and at the same time, take a policy that provides life cover, then money back policy looks attractive. On the other hand, if the goal is to provide for the financial security of the family in case of any unfortunate event, then a term plan is more suitable.

5. Policy Term: Term insurance usually offers coverage for a specified period (10 years, 20 years, or 30 years) and offers only pure risk coverage. Maturity, on the other hand, can bring monetary refunds at specific intervals before the policy is complete.

6. Risk Tolerance: The money-back policies are relatively low risk since they come with assured paybacks. Term plans are not linked to any investment risk and offer sound financial protection in case of your demise.

7. Tax Benefits: While both term insurance and money-back policies provide benefits in the form of tax exemptions under Section 80C of the Income Tax Act. On the other hand, the payout from a money-back policy is also free from tax under section 10(10D), which is an added benefit.

8. Liquidity: A money-back policy provides flexibility as you receive regular cash benefits over the term of the policy. Since term insurance plan is a pure protection product, it does not offer any surrender values.

9. Purpose of Insurance: If you are in it for protection then the best choice should be term insurance. If you require both security and a sort of systematic savings, then the money-back policy is ideal for you.

10. Dependents’ Needs: For families with dependents who need financial support for a long period, a term insurance plan with higher coverage is ideal. If you’re looking for a product that provides some immediate returns during your lifetime, a money-back policy could help.

11. Affordability: In term insurance, you can get a huge sum assured at a very cheap price. A money-back policy may not be within the reach of everyone especially those who are in search of high return coupled with life cover.

12. Payout Structure: In term insurance, the benefits are paid only in the case of death, and these are usually in one single amount. In a money-back policy, benefits are received periodically throughout the policy period, and the final amount stated is paid if the policyholder lives through the term.

13. Maturity Benefits: There are no maturity benefits in term insurance; if the person outlives the policy period, he or she does not receive anything. A money-back policy provides both survival benefits and death benefits.

14. Life Stage Consideration: If you’re younger and just starting your financial journey, term insurance could be a better option due to its affordability. In later stages of life, a money-back policy can be quite beneficial as it provides more obvious dividends.

15. Family’s Future Financial Security: If the primary goal is the financial security of the family in case of the policyholder’s demise, then the term insurance with a high sum insured is necessary.

16. Policy Riders: In addition to the basic term insurance and money-back policies, there are additional riders like critical illness or accidental death benefits. Select the one that lets you add specific riders depending on your situation.

17. Cash Value: A money-back policy creates cash value that can be useful in the future in case of an emergency. Term insurance, however, does not have any cash value that builds up over the years.

18. Decision Based on Age and Income: If you are in your 20s or 30s and want high life cover at a low premium, opt for a term plan. If you are in your 40s or 50s and seeking both savings and protection, a money-back policy may be more appropriate for you.

Ending note

The decision between a money-back policy and a term insurance plan for your family’s future is based on your priorities and financial objectives. A term insurance policy is the best option if you want reasonable, comprehensive coverage to safeguard your family in the event of an unexpected incident. On the other hand, if you want to combine monthly payouts, savings, and insurance, a money-back policy may be the best option. Before making a selection, consider your age, income, future financial requirements, and the level of coverage you desire for your loved ones. Balancing safety and financial prosperity may provide your family stability and peace of mind.

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