Money Back Plan vs. Term Insurance Plan

In India, most of the insurance companies insist money back insurance plan. People are quite sure about their decision regarding insurance. They find money back plan as free of cost plan. If your life is safe after the completion of term, you’ll get your money back. Compared to money back, term plans are less popular especially among the middle class people. Before comparing both, let’s look what these plans are.

Money Back Plan

This insurance plan requires a large sum of money paid once and you get its return after some interval. And the whole amount of insurance is received at the end in case you are alive.

In this plan, you pay around 75% of amount insured. For example, insurance of 5 Lacs will require around 3.5 Lacs to 4 Lacs. If the term is of 12 years, you get some amount back at some interval. If you receive Rs. 50,000 at the end of every 3 years, you get 1.5 Lacs till 9^th year and at the end of 12 years, you get your 3.5 Lacs back. If the insurer dies, heirs will get 5 Lacs.

Term Insurance Plan

Here you pay a very little amount as the premium. For example, you pay Rs. 20,000 for insuring 5 Lacs. You get nothing if you are alive at the end of tenure say 12 years. But if you die, your family/nominee gets Rs. 5 Lacs.

What is The Difference?

You may see you are getting more than you are investing in case you are alive in a money back policy. For this reason, people prefer it more. What if you are no more after one year of taking insurance? Now you see which plan is better for you, and answer is term plan.

Meaning of Insurance

The real meaning of insurance lies in term plan. If you are no more, your dependents get a huge amount to run their life. If you have 75% amount for investment, what extraordinary benefits will the additional 25% amount do. Making it simple, if you can invest 3.5 Lacs, why will you get an insurance of Rs. 5 Lacs only? Term insurance makes it meaningful when you invest a little amount and get high amount in case of death.

Investing For Returns

If you think it’s a safe investment avenue and you will get safe returns, you are again mistaken. Getting returns from money back insurance plan is like getting very low return with a risk of death, because if your die, you don’t get your money back except claim amount.

If you invest in term plan, you get a cover at low amount and you can invest your money in a good investment avenue without risk of your death. If you compare annual return of any money back plan and compare it to term plan with simply PPF returns, you will know the difference. The examples here are with hypothetical amounts but similar to real figures for any insurance plan. When you calculate insurance cover in same way, you will find what mistake you do by taking money back plan.