Term life insurance vs money back policy: All you need to know
Both term insurance and money-back life insurance policies are very popular but serve different purposes.
Life insurance has become an integral part of our personal financial planning. It protects the family of the person insured from life’s uncertainties. Additionally, sometimes it can be used as an investment tool to meet your financial goals and future expenses. So, none can ignore the importance of life insurance. Life insurance comes in different variants. Among them, the two most common categories are term insurance and money-back life insurance policies. Both are very popular but have different objectives.
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 frequent 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. In other words, premium is higher for money back policies.
Coverage
Term plans provide 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 compared to the cover 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 cannot 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.
Both the insurance plans offer tax benefits under the Income Tax Act. The premium amounts paid for term life insurance and money back plans are tax deductible.