How Money Back Plans Work
Money back plans are a type of life insurance where you receive a percentage of the sum assured at regular intervals during the policy term (called survival benefits), and the remaining sum assured plus bonuses at maturity. If the policyholder dies during the term, the full sum assured is paid to the nominee regardless of survival benefits already received.
Regular Payouts
Receive 15-25% of sum assured every 5 years during the policy term.
Full Death Benefit
Family gets complete sum assured even if survival benefits were already received.
Bonus Additions
Reversionary bonuses and terminal bonuses add to the maturity amount.
Tax Benefits
Premium deductible under Sec 80C. Maturity proceeds tax-free under Sec 10(10D) if conditions are met.
Should You Buy a Money Back Plan?
? Advantages
- Periodic cash inflows during the term
- Guaranteed returns (low but certain)
- Life insurance cover included
- Good for disciplined savings
- Tax benefits on premiums and payouts
? Disadvantages
- Very high premiums for limited cover
- Returns typically 4-5% — below inflation
- Long lock-in periods (15-25 years)
- Surrender value is very low in early years
- Not suitable as primary life insurance
Better Alternative
For most people, term insurance + SIP in mutual funds gives much higher coverage AND better returns. The SIP can be set up with systematic withdrawal plan (SWP) for regular payouts similar to money back plans, but with far superior returns.
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