Endowment vs Money Back Policy - What Should You Buy?

When you are buying an insurance policy for the first time, you might come across two options. There are term policies as well as money back insurance policies. Both have their own advantages and disadvantages. You should be aware of their features, benefits and other important factors before choosing the plan. The very basic purpose of life insurance should be fulfilled by paying an affordable premium.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

Endowment and money back policies also provide savings. However, there are a few small differences between these two life insurance products. You should understand these differences in order to buy the best insurance plan in order to secure your future.

Endowment policy

If you die during the endowment policy term, the family will get the death benefit (sum assured).
If you do not die during the policy term, you will get back the premium that you had contributed to the insurance company.

Money back policy

In case of money back life insurance policy, the insurance company will pay money at regular intervals as per the terms and conditions of the policy.

Difference between a term policy and money back/endowment policy

If you die during the policy term, your family will get the death benefit (sum assured).
If you do not die, you will not get any money.

The greatest advantage with the term policy is that the premium will be very low and the benefits is very high. Hence, no returns are promised if the policyholder survives.

Purpose of the insurance policy

A pure insurance policy covers risk. If you would like to cover the risk to the maximum potential extent, you should not consider it from an investment point of view.

The very purpose of a life insurance product is to replace financial loss. As it is not possible to prevent the loss of life, you should take steps to offer stability to your family or dependents. The financially dependent children, spouse, and parents should have access to funds after the demise of the breadwinner. A pure insurance policy will offers benefit. Even though you cannot help them with the emotional loss, you can ensure that they aren’t subject to any financial loss by choosing an appropriate insurance plan.

Life insurance policies with the investment component

An endowment policy or money back policy comes under category of life insurance products with an investment component.
The returns are guaranteed up to the term of the policy.
The difference between an endowment policy and a money back plan is the time period of the delivery of sum assured.

Benefits of endowment plans

If the policyholder survives the term, the sum assured and the bonuses (if any) will be paid to the policyholder. The payment will be made at the end of the term.
In case of death of the policyholder, the sum assured and the bonuses are paid immediately.
Endowment plans work by accumulate wealth over a long-period of time. The money invested in the form of an endowment policy will cover the risk to your life and provide you with a lump sum at the end of the term as well. The returns are useful for children’s marriage or education-related expenses.

Benefits of money back plans

The policyholder will get a fixed percentage of the sum assured at regular intervals. The balance sum assured and bonuses (if any) will be paid at the end of the term.

If the policyholder dies during the policy period, the sum assured will be paid to the nominee or beneficiary along with the applicable bonuses.

The money back policy is ideal to fulfill your short-term financial goals. The key events in your children’s lives such as marriage and education will be borne by the insurance policy.

Types of bonuses

As per the policy wording, you will be eligible for guaranteed bonuses and other types of bonuses as per the performance of the insurance company.

Reversionary bonus – It is a simple bonus offered by the insurance company with the endowment policy. The bonus will be declared by the insurance provider on an annual basis for every thousand rupees of the premium paid by the policyholder. The bonus can be paid at the time of maturity or claim or surrender of the insurance plan. You can find the bonus amount on the company’s official website. The simple reversionary bonus will not compound and it will be the same until the final payment date.
Final Additional Bonus (FAB) – If you subscribe to a policy for a long period of time such as 15 years, you will be eligible for FAB. The bonus amount will be calculated at the end of the policy term and it will be paid along with the sum assured.
Additional loyalty Bonus – Policyholders who maintain loyalty for a suitable period of time as assessed by the insurance company are eligible for loyalty bonuses. The bonus will be calculated for every 1000 rupees of the sum assured.

Comparison of insurance products

If you are interested in buying a money back or endowment policy, you should compare various policies and their returns. You can go through the official website to understand the bonus earning potential so that you can maximize the yield. As per the directions of the IRDAI (Insurance Regulatory and Development Authority of India), the life insurance company should provide complete information about the policy and its returns so that customers can choose the best policy as per their needs.

Finally

An endowment policy offers death benefit, maturity benefit and participation in profits of the insurance company as per the terms and conditions mentioned in the insurance policy. You can also get optional death and disability benefits by purchasing an endowment policy. You can choose a money back plan if you require a regular flow of money over a period of time. However, the returns will be lesser than in an endowment policy. You can choose various riders to enjoy special benefits and to cover the risk to the optimum potential extent.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).