Understanding the differences between various insurance plans is important to choose between the best term insurance or any other insurance plan for that matter in order to secure your financial future. Term insurance plans and money back policy are two popular options, with each providing unique benefits. As a buyer, you may be confused between term insurance and money back policies considering the fact that both plans provide insurance benefits. In this article, we will be comparing these two plans to see which plan can help you secure your future.
What is a term insurance plan?
A term insurance plan is a type of life insurance policy that provides coverage for a specific time period, known as the term. If the insured person dies during this period, the policy will pay a predetermined sum of money to the designated beneficiary, known as the death benefit. Term insurance, unlike whole life insurance, does not accumulate cash value over time. It is just intended to provide pure financial protection to the beneficiaries in the event of the insured’s death provided it happens during the term of the policy.
Advantages of Purchasing A Term Insurance Plan
Purchasing a best term insurance plan is one of the reasonable ways to provide financial security to your loved ones. Let’s look at some of the benefits of buying a term plan:
Financial Protection: A term insurance policy provides financial security to your loved ones in the event of your untimely death. The death benefit ensures that your family members are financially secure and able to maintain their standard of living, pay off debts, cover expenses such as mortgages or education costs, and meet other financial obligations.
Affordability: One of the best features of the best term insurance is it comes with a high coverage amount at low premiums when compared to other types of life insurance policies. This affordability allows individuals to avail themselves of adequate coverage to protect their families without exceeding their budget.
Flexibility: Term insurance plans provide flexibility in policy duration and coverage options. Policyholders can select the tenure that best suits their financial goals and family needs. They can also add additional riders or benefits to their coverage, such as an accidental death benefit, a critical illness rider, or a premium waiver.
Peace of mind: Knowing that your loved ones will be financially secure in your absence gives you peace of mind. The best term insurance plan ensures that your family’s financial future is protected, no matter what life throws at them.
Tax Benefits: Premiums paid for term insurance are eligible for tax deductions under Section 80C of the Income Tax Act, up to a certain limit. Furthermore, the death benefit received by the nominee is typically tax-free under Section 10(10D) of the Income Tax Act, making term insurance an effective tax-saving tool.
What is a money-back policy?
A money back policy is a type of life insurance plan that combines insurance and savings. This policy provides the insured with periodic payouts, known as survival benefits, at predetermined intervals throughout the policy term. These intervals typically correspond to a percentage of the total sum assured. Unlike traditional life insurance policies, which pay out only upon death or maturity, a money back policy provides liquidity by returning a portion of the sum assured at regular intervals, even if the insured lives through the policy term. If the insured dies during the policy term, the nominee receives the full sum assured, minus any previously received survival benefits. This type of policy offers both financial protection and savings or investment opportunities, making it popular among those looking for a mix of insurance coverage and periodic returns.
Benefits of Purchasing a Money-Back Policy
Purchasing a money back policy combines insurance coverage, periodic returns, savings, and tax benefits. Let’s look at some of the benefits:
Periodic payouts: One of the primary benefits of a money back policy is that the policyholder receives regular payouts or survival benefits at predetermined intervals throughout the policy term. These payouts provide liquidity and can be used for a variety of financial needs or goals.
Financial Protection: A money back policy, like traditional life insurance policies, pays out a death benefit to the nominee if the insured dies during the policy’s term. This ensures that the nominee receives a lump sum payment to meet their financial obligations and maintain their standard of living.
Savings Component: Money back policies are a type of savings or investment in which a portion of the premium paid accumulates over time and is returned to the policyholder in the form of survival benefits. This can help individuals save for future expenses or emergencies.
Flexibility: Money back policies frequently provide flexibility in terms of premium payment frequency, policy duration, and coverage options. Policyholders can select the policy duration and premium amount that are most appropriate for their financial situation and goals.
Tax Benefits: Premiums paid for a money back policy may be deductible under Section 80C of the Income Tax Act, resulting in tax savings for the policyholder. Furthermore, the maturity amount and death benefit are typically tax-free under Section 10(10D) of the Income Tax Act, subject to certain conditions.
Which is the better option: Term Plan or Money Back Policy?
Finally, your priorities will determine whether a term plan or a money back policy is preferable. If your primary goal is to provide financial security for your loved ones at a reasonable cost, a term plan may be the best option. However, if you value both insurance coverage and periodic returns, as well as liquidity and savings, a money back policy may be a better fit. Before making a decision, take into account your financial objectives, risk tolerance, and long-term plans. Consulting with a financial advisor can also assist you in determining the best option for your unique situation.
