Which One To Choose: Money Back Or Endowment policy?
May 19, 2018 15:44
Amidst so many investment instruments available in India, zeroing on to a suitable investment option is becoming more and more difficult. But thanks to the easy and convenient access to information, people have at least become familiar with the various products and gained a basic understanding of the terminologies used in the investment sector.
People make their investments based on their ability to take risks and the goals they have. Nowadays, it’s pretty common to hear people say that they have invested in an endowment policy or have bought a money back policy.
It’s important to understand that both these plans come with the twin benefits of life insurance & savings, and also offer the benefit of tax exemptions. However, although similar in many ways, they have quite a number of differences too. Read on to find out:
Both endowment and money back plans offer maturity and death benefits. It means that, if the insured survives the policy tenure, he will receive the maturity benefit from the insurance company and in case of his death, his nominee receives a death benefit from the company.
Also, unlike ULIPs (Unit-Linked Insurance Plans), neither of these plans depend upon the market for their performance. Hence, these plans invest your money at a fixed interest rate that is been determined upon at the time of purchasing the policy. Subsequently, you will receive the amount you were assured of at the maturity date (the day your policy term ends), or it will be given to the nominee in the unfortunate event of death.
One of the most prominent differences between these two plans is that in an endowment plan such as LIC Money Back Policy, the sum assured is paid on the maturity date; whereas in a money back plan such as LIC Market Plus Plan, the policyholder is paid his sum assured at regular intervals.
In a hypothetical situation, it means that as an investor you will receive your first sum assured instalment once you have completed 3 years of the policy subscription, the second one when you have complete 6 years and so on.
One of the other major differences is that an endowment plan can be used as a security asset in case you are looking for a loan. On the other hand, a money back policy can’t used for this purpose as the sum assured amount constantly keeps on decreasing in this insurance type.
Which one to choose?
An endowment plan is the perfect choice for individuals who are not very good at saving. Usually, these people find it difficult to maintain a healthy balance in their savings accounts; however, if they opt for endowment plans, not only will they be able to develop a regular saving habit but will also be able to secure money for important financial phases in their life such as for kids’ education, their wedding etc.
On the contrary, a money back policy is ideal for investors who are looking or an option wherein they can receive a regular flow of funds whenever they need one such as for their kids’ school examination, college admission, etc.
Hence, depending upon whether you want to get a regular flow of funds or save a lump sum for future needs, you can choose either of these plans.
Investing in a money back plan will give you returns at regular intervals, which is really helpful to fulfil your short term goals. Whereas, an endowment plan helps you to save a wholesome amount that you will receive on the maturity date.
However, make it a point to compare all the policies, their benefits and riders before finalising your decision. Just don’t get carried away by the lucrative premium amounts. Take your time and thoroughly read the terms & conditions before signing the deal.
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