How Money Back Insurance Policies Are the Perfect Saving Scheme for Families

Looking for a savings scheme that also protects your family? Money back insurance policy claims to do both.

But is it really perfect for families? Or just clever marketing?

Let’s honestly examine when money back insurance policy works as a savings scheme and when it doesn’t.

What is a Money Back Insurance Policy

A money back insurance policy is an insurance that returns money at regular intervals while you’re alive.

Simple example:

Take 20-year policy for a 10 lakh sum assured. Pay a premium yearly. Every 5 years, get 20% of the sum assured back. Year 5: Get 2 lakhs. Year 10: Get 2 lakhs. Year 15: Get 2 lakhs. Year 20: Get the remaining 4 lakhs plus bonus.

Key feature:

You don’t wait 20 years for all the money. Get portions periodically. Plus life cover throughout.

If you die anytime during the 20 years, your family gets the full 10 lakhs immediately, regardless of money already received.

How It Works as a Saving Scheme

Regular payouts:

Money comes back at fixed intervals. Use for planned expenses. School fees, home repairs, and family vacation.

Forced discipline:

Premium payment forces you to save. Miss it and policy lapses. So you stay committed.

Life cover included:

While saving money, the family also stays protected. If something happens to you, they get the full amount.

Tax benefits:

Premium qualifies under Section 80C. Payouts are usually tax-free under 10(10D). Saves tax while building a corpus.

Maturity benefit:

Final payout includes the accumulated bonus. Adds to your returns beyond the sum assured.

Why Families Consider It

Milestone planning:

Kids’ school admission is every few years. Money back instalments help pay. Removes the pressure of suddenly arranging funds.

Dual benefit appeal:

One product handles insurance plus savings. Simpler than managing multiple products.

Safety factor:

Conservative families prefer guaranteed returns. Stock market volatility scares them. Money back gives certainty.

Traditional trust:

Parents and grandparents used these policies. Familiar territory. Comfortable choice.

Agent push:

Insurance agents actively promote. Easy commission for them. Families get convinced.

The Reality Check

Let’s be honest about money back insurance policy as savings scheme.

Returns are modest:

Typically 4-6% yearly after charges. Compare with FD giving 6.5-7%. Or PPF at 7.1%. Or equity funds at 12-15% long term.

Your money grows slowly in money back policy.

High charges:

Premium allocation charges in the first year. Policy administration charges. Mortality charges for insurance. Agent commission.

All these reduce what actually gets invested.

Low insurance cover:

The sum assured is usually small relative to the premium. Family gets inadequate protection if tragedy strikes.

Better alternatives exist:

Term insurance plus a separate investment almost always gives more returns and better protection.

Comparing Money Back with Alternatives

Money back policy vs Term + Mutual fund:

Money back approach: Premium: 60,000 yearly for 20 years. Life cover: 10 lakhs. Maturity: Around 15-16 lakhs.

Separate approach: Term insurance: 1 crore cover for 15,000 yearly. Balanced fund SIP: 45,000 yearly. Maturity: Around 25-27 lakhs at 10% return.

A separate way gives 10 crore protection and 10 lakhs extra corpus.

Money back vs PPF + Term insurance:

Money back: 50,000 yearly, 10 lakh cover, 13-14 lakh maturity in 20 years.

PPF + Term: 50,000 in PPF yearly, 1 crore term insurance for 12,000 yearly. PPF maturity around 20 lakhs.

PPF route gives better returns, much higher protection, and costs less overall.

Smart Family Strategy

If you still want money back insurance policy, use it wisely within a broader savings scheme:

Core protection first:

Buy 1 crore term insurance separately. Costs just 15,000-18,000 yearly. This handles family protection properly.

Growth allocation:

Put 50-60% savings in equity mutual funds or ELSS. This builds wealth over the long term.

Safety allocation:

Put 20-30% in PPF or debt funds. This gives a safe, guaranteed portion.

Money back as a supplement:

Use small money back policy for a specific periodic need. Maybe 10-15% of total savings. Not the entire portfolio.

This balanced approach uses money back without depending on it completely.

For Different Family Situations

Young couple, no kids yet:

Skip money back. Focus on growth. Term insurance plus equity SIP. Money back doesn’t fit here.

Parents with toddlers:

Maybe a little money back for school fees in 5-7 years. But the majority of savings are in equity for a long-term education corpus. Plus adequate term cover.

Single parent:

Protection becomes critical. Long-term insurance is essential. Suppose money back gives comfort; a small portion is okay. But term insurance is a must.

Joint family with elderly:

Conservative approach needed. Money back fits better here. But still have term insurance and some equity exposure.

Making Your Decision

Understand your family’s actual needs honestly. Not what the agent says you need. What you genuinely need. Compare properly using numbers, not emotions. Calculate returns. Check insurance adequacy. See alternatives.

If money back insurance policy truly fits as part of a diversified savings scheme, go ahead. Just don’t make it your only financial product. Research. Compare. Decide. Execute. Your family’s financial security depends on informed choices, not convenient ones.