Planning for retirement is one of the most important financial decisions in life.With many different options available, selecting the Best Retirement Plan in India can be huge. Amongst the most renowned options, traditional plans, such as money back & endowment, are widely considered for assured returns. Let us have a closer look at the differences between the two.
What is a Money Back Policy?
A money-back plan is a kind of life insurance plan, which includes paying a certain specific percentage of the sum assured regularly. It best suits those individuals looking for long-term investment options, financial security, & regular payments. If the policyholder survives throughout the policy tenure, they will get the remaining amount of the sum assured. And, if the policyholder dies during the policy tenure, the full amount of the sum assured is repaid to the nominee, irrespective of the fact that the survival benefits have already been paid.
Benefits of Money Back Policy
Provided are the benefits of a Money-Back Policy
- Life Coverage
These plans offer life insurance coverage in the unfortunate event of the policyholder’s death, ensuring financial protection for the family members. The nominees receive the full amount of the sum assured, besides survival benefits.
- Periodic Payouts
This plan includes regular payouts at some pre-determined intervals during the policy tenure, ensuring financial stability with liquidity at different stages of life.
- Flexibility in Premium Payments
This plan offers policyholders flexibility in choosing amongst different premium payment options, like single premium, limited pay, depending on their financial priorities.
- Taxation Benefits
The premium paid towards the plan is eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. The maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
- Risk Mitigation
This plan best suits risk-averse investors as it offers dual benefits of life insurance & investment.
- Maturity Benefits
The policyholder gets the sum assured amount if he survives the plan & accrued bonuses as maturity benefits. This amount acts as a financial protection during the course of retirement.
- Bonuses
Some of the money-back plans also offer a bonus depending on the financial performance, which helps enhance the overall returns.
Endowment Plan
An Endowment Plan is a combination of both life insurance coverage & long-term savings that offer assured returns. This means that in case of sudden demise of the policyholder during the policy tenure, the entire sum assured & bonus accumulated, if any, will be paid to his/ her beneficiaries. Also, this plan entitles the policyholder to receive the amount of sum assured along with the bonus accumulated, if any, if he/ she survives the policy.
Here, a part of their contribution is diverted towards life insurance coverage, which ensures financial security to the family members & partly gets accumulated towards savings.
Benefits of an Endowment Plan
Provided are the benefits of an Endowment Plan:
- Financial Security
This plan offers life insurance coverage, which means nominees will get death benefits in case of the policyholder’s death.
- Savings or Investment Component
Besides the life insurance element, this plan also offers an investment component, towards which premiums are paid partly.
- Surrender Value
This plan also pays a surrender value in case the policyholder wants to surrender the plan at any time before maturity, which is less than the premium paid.
- Maturity Benefit
This plan offers a sum assured along with bonus or returns paid to the policyholder at the end of the policy tenure.
- Tax Benefits
The premium paid towards the plan is eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. The maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
- Loan Facility
Some of the insurance companies offer a loan facility against the cash value, which helps in any financial requirements.
Difference between Money-Back Policy & Endowment Plan
Provided are the differences between a money-back plan & an endowment plan:
| Basis of Difference | Money Back Policy | Endowment Plan |
| Purpose | This plan offers payouts to be received on a periodic basis during the policy tenure. | This plan provides dual benefits of savings & insurance. |
| Death Benefit | If the policyholder survives the policy tenure, he gets survival benefits. And, if he dies, the nominees will receive the sum assured irrespective of the fact that the survival benefit has already been paid. | In case of the policyholder’s sudden death, the nominee gets a lump sum amount during the policy tenure. |
| Maturity Benefit | It involves receipt of periodic payouts throughout the policy tenure, along with survival benefits at the time of maturity of the plan. | It involves the receipt of a lump sum amount along with a bonus to the policyholder at the time of maturity of the plan. |
| Premiums | The premium amount under this plan is considered to be less than that of endowment plans, but higher than that of term plans. | The premium amount under this plan is higher than the money-back plan because of the savings component included. |
| Cash Value | It involves receipt of periodic returns along with a cash value, which might be lower than that of an endowment plan. | It involves the accumulation of cash value over a period of time, where the policyholders are eligible for loans against this value. |
| Flexibility | They are flexible in terms of premium payment terms. | They are also flexible in terms of premium payment terms. |
| Tax Benefits | The premiums paid towards the plan are eligible for tax deduction u/s 80C. And, the maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961. The survival benefits are also exempt from tax. | The premiums paid towards the plan are eligible for tax deduction u/s 80C. &, the maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961. |
| Ideal For | This plan best suits those who are in need of periodic liquidity along with an insurance component. | This plan best suits those who are looking for dual benefits of insurance & long-term savings. |
Conclusion
Both the money-back & endowment plans provide assured returns. But letting you select the best retirement plan in India will depend on the financial objectives, risk tolerance level, & investment horizon of the policyholder. Hence, one should choose to buy a plan that well aligns with these factors, hence providing them with financial stability & mental peace.
