A money back plan returns part of the sum assured at regular intervals while keeping your family covered. Learn how payouts and the death benefit work.
A money back plan is a type of savings-cum-insurance policy that gives you part of your money back at regular intervals during the policy term, instead of all at the end. At the same time, your family stays protected by life cover for the full term.
It is popular with families who know they will need cash at certain points in the future, for example for a child's school admission, college fees or a wedding.
How a money back plan works
In a typical money back plan:
- You choose a sum assured and a policy term, and pay premiums regularly.
- At fixed points during the term (say every 5 years), you receive a survival benefit, which is a set percentage of the sum assured.
- At the end of the term, you receive the remaining part of the sum assured plus bonuses (in a participating plan).
- If you die during the term, your nominee receives the death benefit as defined in the policy.
The payouts already received are called survival benefits because you get them only if you are alive on those dates and the policy is in force.
A simple example
Illustration only, not a quote.
Take a 20-year money back policy with a Basic Sum Assured of ₹5,00,000, where 20% is paid back at the end of the 5th, 10th and 15th years, and the remaining 40% at maturity:
| When | What is paid | Amount |
|---|---|---|
| End of year 5 | 20% of sum assured | ₹1,00,000 |
| End of year 10 | 20% of sum assured | ₹1,00,000 |
| End of year 15 | 20% of sum assured | ₹1,00,000 |
| End of year 20 (maturity) | 40% of sum assured + bonuses | ₹2,00,000 + bonuses |
In total you receive the full ₹5,00,000 over 20 years, plus bonuses added to the policy. Bonuses are declared by LIC from time to time and are not fixed in advance.
What happens if the policyholder dies after receiving money back?
This is the question families ask most, and the answer is reassuring. In LIC's money back plans listed at the end of this article, the death benefit is not reduced by the survival benefits you have already received.
Continuing the example above: suppose the policyholder dies in year 12, after receiving ₹1,00,000 in year 5 and ₹1,00,000 in year 10. The nominee still receives the full death benefit as defined in the policy, plus the bonuses added up to that point. The earlier payouts are not cut from it.
For example, under LIC's New Money Back Plan-20 Years (720), the "Sum Assured on Death" is the higher of 125% of the Basic Sum Assured or 7 times the annualised premium, payable along with bonuses, and the policy terms do not deduct survival benefits already paid. Always read the exact terms of the plan you choose.
Who does a money back plan suit?
A money back plan may suit you if you:
- have planned expenses at regular intervals, such as education stages
- want liquidity during the term rather than one lump sum at the end
- prefer low-risk savings with life cover
- like the comfort of seeing some money come back while still paying premiums
Pros and cons
Pros
- Regular lump sums for planned needs
- Full life cover continues throughout the term
- Bonuses in participating plans
Cons
- Premiums are usually higher than an endowment plan with the same sum assured, because money is paid out earlier
- If you spend the survival benefits on everyday needs, your long-term goal may fall short
- Leaving the policy early can mean getting back less than you paid; see surrender value, paid-up value and policy loans
A good habit: decide in advance what each survival benefit will be used for. Tax treatment of payouts depends on prevailing tax laws and the regime you choose.
Which LIC plans are of this type?
LIC's money back options include LIC's New Money Back Plan-20 Years (720), which pays 20% of the Basic Sum Assured at the end of the 5th, 10th and 15th years, and LIC's New Children's Money Back Plan (732), which pays at the child's ages 18, 20 and 22. See all of them on our money back plans page, and compare with an endowment plan.
Want to see what a money back plan would cost you? Get a premium estimate or talk to us.