Moneyback plans of insurance companies are popular because of their in-built feature of returning wealth to the customer at regular intervals. While there are some who complain the returns generated by such products are low, smart usage of moneyback plans can greatly enhance returns and provide great financial comfort, say experts.
Many argue that returns in moneyback plans are not as good as pure investment plans. This is because moneyback plans are not purely investment oriented. “The real value of money back policy comes to prominence when you realize that value of money decreases over time,” says Life Insurance Council secretary V Manickam. This means Rs 10,000 today will fetch you more than Rs 10,000 after 5 years. This effect can greatly reduce the purchasing power. Moneyback plans, because of their regular payments help you to get better returns because you can deploy the funds now, instead of doing it after 10-20 years as in case of other insurance policies which pay out at maturity.
Such kind of a plan is the only product which provides triple privilege of survival benefit, maturity benefit and insurance cover, helps plug many unplanned expenses. “One of the smart uses is paying for the policy itself after sometime. If you have to pay annual premium of say, Rs 5000, after 5 years the Rs 10,000 itself is paid back, that sum can fund your life insurance premiums for two years (Rs 5,000 premium x 2 years),” says Anil Rego, founder of financial consulting firm Right Horizons. Moneyback plans are a special category, since the liquidity (through money back payouts) to customer is not available in other traditional endowments.
While life insurance products are usually for your long term goals, there are times when you would need interim payouts to meet your short term financial requirements as well. “This is where the money back plans score over other type of products such as endowments. Therefore, one of the key attractions of such plans is the gratification which the customer gets over a short period. Such plans are typically very useful in short to medium term financial and lifestyle enhancement needs, such as house renovation, buying consumer durables, family vacation or important milestones needs such child education and tuition funding, funding for your child’s extracurricular activities etc.,” Rishi Mathur, head-products and strategy, Canara HSBC Oriental Bank of Commerce Life Insurance Company told DNA Money.
There are some moneyback policies which can be pledged or be used to give you short-term loans. Usually, loans are given against the surrender value, the amount which the policyholder will get if she decides to close the insurance policy before maturity. Normally, 80% of surrender value is given as loan. Interest rates are variable and revised every year in most cases. Repayment periods are not very long, because they are usually last resort in case of an emergency. “Loans can be a good use of smart usage of money back plans. It helps use an existing asset to get a better interest rate,” says Rego.
- Many argue that returns in moneyback plans are not as good as pure investment plans.This is because moneyback plans are not purely investment oriented
- Experts believe that since value of money decreases over time, such plans can greatly reduce purchasing power
- Unlike life insurance products like endowment, moneyback plans give short to medium-term returns by giving interim payouts for short-term needs