Money back life insurance policy covers the risk and delivers financial returns at various life stages. You will also get a lump sum at the maturity along with the bonus. A fixed percentage of the sum assured will be returned during the policy term. The planned expenditures can be met with the help of the payments. Instead of using the money obtained at various stages, you can invest the money to get higher returns. It is possible to get returns higher than the endowment plan by applying the formula.
Why should you choose money back plan?
Money back plan is chosen by policyholders to get returns that will help them meet their expenses at various life stages. You can choose a policy from reputed companies such as LIC, SBI Life, HDFC and Birla Sun Life.
There will be coverage of the risk with the money back plan. If there is risk to the policyholder ‘sum assured’ will be paid to the nominee or beneficiary. The policy will also deliver returns if the policyholder is alive after the maturity date. Hence, there are prospects to create wealth with the help of the money back life insurance plan.
There will be good returns on the investment and the risk appetite will be very low. The policyholder will get income tax exemption on the premium contributed towards the insurance plan under Section 80C. The returns delivered by the insurance plan are exempt from tax under Section 10 (10D).
It is easy to contribute the premium for the money back plan. The policyholder can choose monthly, quarterly, half-yearly and annual premium as per his convenience.
To increase the overall returns of the money back plan, the money can be reinvested in various financial products. As the tax-free money back can be invested as per the convenience of the policyholder, it is possible to generate higher returns. The returns will be higher than the endowment plan and you can make the most of your money.
Returns on money back plan
Usually, the returns on the money back plan will be lower than the returns on the endowment plan. The premium contribution towards the money back plan will be higher than the endowment plan.
The bonus paid by the money back plan will be lower than the bonus paid on the endowment plan. Even though the money back will help you meet the regular expenses in a very efficient manner, the overall returns will be less than the endowment plan.
You can re-invest the regular returns of the money back plan to get higher returns after the maturity date. The returns can be invested in fixed deposits, national savings certificate, equities and mutual funds. You can also explore debt funds and hybrid funds to generate better returns. The sum of the proceeds of the re-investment amount plus the maturity proceeds will be higher than the returns obtained by the endowment plan.
Reinvestment of money back returns
The money back that you get from the policy at fixed intervals can be reinvested in the following plans:
- Fixed income or debt instruments
- Hybrid investments/balanced funds
- Diversified equity funds
Of all the three different options listed above, the returns from the diversified equity funds will be high. You can choose best performing funds as per the Crisil’s rating and you can manage excellent returns on regular basis.
You will get tax exemption on returns by investing in equity funds for more than one year. The long-term capital gains on the equity gains will be 10% if you get more than Rs. 1 lakh returns as LTCG gains. If your LTCG gains are less than Rs. 1 lakh per annum, the returns are 100% tax-free. The LTCG gain taxation was introduced in the 2018 budget and it is applicable for the financial year 2018-19. Hence, you can make use of the LTCG gains by investing your money back returns in equity funds.
Investing in stock market
If you have a fair knowledge of the equity market, you can participate directly by buying shares and debentures of various companies. The historic performance of the company and other parameters will help you assess the future prospects of stocks.
Conclusion
The returns of a traditional money back policy will be less than the endowment policy. You can increase the returns by plowing back the proceeds of the money back returns to other investment options. Thus, you can improve your overall returns when you combine re-investment returns with the maturity proceeds. You can invest the money back proceeds into various funds as per your risk appetite. With the fixed deposits, the risk will be the least. As you choose balanced funds, you can get a moderate appreciation of the capital. By investing in very high-quality diversified funds, you will enjoy higher returns. Thus, you can increase returns on the money back life insurance plan.