A look at Money Back Policies & LIC New Bima Gold
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What are Money Back Policies?
A Money back plan is an endowment plan which combines both insurance and investment. The main objective of a money back plan is to provide fixed sum of money at regular intervals. This amount depends upon the sum assured of the individual. On maturity, the insured recieves remaining portion of the sum assured and loyalty additions.
Consider the following example to understand how money back policies work:
For a Sum Assured of Rs 2,00,000 and term period of 16 years, the premium for LIC Money Back policy comes to roughly around Rs 10,000 . After every four years, the insured receives an amount of 3*yearly premium= Rs 30,000 (in this case). This amount is inturn deducted from the the sum assured. At the time of maturity of this money back plan, insured receives remaining portion of the sum assured and loyalty additions, in any. In case the insured dies before policy completion term, his/her nominee gets the entired Sum Assured.
Who all benefit from a money back plans?
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Money back policy is beneficial for those who need lump sum amounts at regular intervals to meet their goals, say son’s education after 4 years, daughter’s marriage after 8 years, etc.
Tax treatment of money Back Life Insurance
The sum received at regular intervals is tax free. Also the amount received on maturity of policy is tax free as well.
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Calculating returns from money back policy
While your agent might paint you a different picture on returns from a money back plan, we tell you how you can calculate returns on money back policies yourself.
In our example we are considering LIC New Bima Gold Money Back Policy with a sum assured of 2 lakhs with a policy term of 16 years.The yearly premium comes out to be roughly Rs 9,784. Every four years the insured gets back Rs 30,000. At the end of policy term he has been told that he would roughly get a sum of Rs 1,00,000.
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The rate of return is calculated as IRR or Internal Rate of Return. It in the interest accrued on investment that has outflows as well as inflows but ar regular intervals. MS Excel is very handly in calculating this return. Below excel details how the returns are calculated for this LIC Money Back Plan.
Click here to calculate returns on Money Back Plans
As can be seen, the returns from this policy come out to a disappointing 6%. So should you really invest in Money Back Policies? A study by Outlook Money says that Money Back Plans are no longer relevant in the 21st Century. Infact even for the most risk averse investors, buying a combination of term plan and PPF turns out to be more beneficial. Read about this study here.
For FAQs on LIC Money Back Plan click here.
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