Term Life Plan Vs Money-Back Plan: Which One to Buy?
Buying an insurance policy can be a confusing ordeal where you get different benefits in every policy at multiple premium quotes. With term plan and money-back policy being popular amongst many policyholders, both plans have their own set of unique perks. So let’s understand which plan you should get by comparing both the policies for three major aspects:
What Is Term Life Insurance?
A term life insurance policy is a plan that provides a life cover to the policyholder for a fixed period of time in return for paying regular premiums. In case of death of the policyholder, the beneficiary receives a sum assured as a death benefit. But if the policyholder was to survive the term, no maturity benefit can be availed on it.
Benefits:
- Pure life cover
- Affordable premiums
- Tax benefits
- High sum assured
What Is Money-Back Insurance Plan?
A money-back plan is an insurance policy that gives a life cover to the policyholder along with regular payouts after every five years. This insurance plan also provides a maturity benefit after the policy expires. In case of death of the policyholder, a death benefit is given to the beneficiary irrespective of how many payouts have been availed.
Benefits:
- Maturity benefit
- Payouts after every five years
- A considerable amount of sum assured
- Tax benefits
Now, let’s compare both the policies on certain aspects to understand which one you should buy:
1. Life Cover
Term life insurance policies are primarily known for life covers and come with higher sum assured for a lower premium rate.
For example: A term policy provides you with a coverage amount of INR 1 crore for a hypothetical amount of INR 600 when compared to a money-back plan which will give you a life cover of INR 25 lakhs for the same premium amount of INR 600.
2. Tax Benefits
Both term and money-back plans give tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. You can claim the premiums paid towards securing an insurance plan and also the death benefit, maturity or survival benefit for tax deductions.
3. Return on Investment
When you buy a term plan, the only returns you get from it is the death benefit in case you pass away during the policy term. But if you survived the term, there is no maturity benefit, hence, you have to give up on the premiums paid towards the term plan. But a money-back plan acts as a long-term savings tool as you are eligible for a maturity benefit and also receive regular payouts.
Though both plans have their own pros and cons, you need to understand what your need is while buying an insurance plan. If you are looking for a pure life insurance coverage plan at a lower rate, a term plan is for you. But if you want a plan with a coverage cum savings options, you should opt for a money-back policy. Insurance policies come with numerous options allowing you to choose according to your requirements.
