Term insurance or money back policy? Which one to buy

Life insurance is an irreplaceable tool that ensures the financial well-being of your loved ones in your absence. Additionally, sometimes it helps as an investment tool to meet your financial goals and future expenses. Life insurance comes in many variants. Among them, the two most common categories are term insurance and money-back life insurance policies. Both have different purposes to solve. It is important to know the difference between the two.

Let’s take a look.

Basic differences

Term insurance plan is the most basic type of life insurance policy. The plan is designed to cover the risk of death. There is no other benefit.

Money back policy, on the other hand, is an endowment plan with the regular income benefit. Under these plans, the policyholders receive a percentage of the sum assured as a survival benefit at regular intervals instead of getting a lump sum amount at the end of the policy term.

Premium

Since a term insurance plan does not offer any return and only provides risk cover, it is less expensive. On the other hand, a money-back plan provides a maturity benefit, along with bonus additions. These additional features make money back policy more expensive.

Coverage

The term plan provides high coverage at a low premium amount. Conversely, a money-back insurance policy has a lower sum assured for the same premium amount.

Return on investment

In a term plan, there are no maturity benefits, since the premium paid itself is very small versus the cover amount provided. However, the money back plan will return a certain percentage of the sum assured at specific time intervals within the policy term.

Flexibility

Under a term life insurance plan, the policyholder has the right to choose the coverage amount as well as the tenure of the policy as per his or her personal needs and requirements.

Usually, the money back plans come with a policy tenure ranging between 10 to 30 years.

Loan facility

The loan facility is not available on term life insurance plans. So you can not take money against pledging term insurance policy bonds.

On the other hand, a money back insurance policy offers loans at low interest. It does not affect the future premium amounts.

Bottom line

Both the insurance plans offer tax benefits under the Income Tax Act. The premium amounts paid for term life insurance and moneyback plans are exempted from taxation. So, you need to consider your personal choice and financial requirements when choosing between term insurance and a money back life insurance policy.