In money back policy, you will be getting certain percentage of the sum assured at different intervals.
A typical 20-year money back policy will give you 20% after 5 years, 20% after 10 years, 20% after 15 years and 40% along with bonus at the end of 20 years. In case of death in between, the nominee will get the full sum assured irrespective of the payments made already. The premium under money back policy is high compared to endowment policy.
The returns are even lower than the endowment policies. The agents get high commission in these type policies also. Though not very popular in cities, the money back policies are sold like hot cakes in Tier-2 and Tier-3 cities mainly to business people.
Children Policies
Nikhil and Rekha are expecting their second child next month. Their first daughter is now 3 year old. Parents want to start planning for the child’s future education. They want to give the best possible education to their kids and want to plan for it.
Rekha’s uncle is an insurance agent and he had already suggested a long term savings plan for the child’s future. He suggested them to go for a 10 lakhs policy with 18 year duration so that the maturity amount will be payable when the child is aged 18 to be used for the graduation expenses.
The details of the policy are given below:
1. Yearly premium to be paid – 57,000
2. Number of years to pay – 18 years
3. Total premium payable in 18 years – 10.26 Lakhs
4. Approximate maturity amount after 18 years – 18 lakhs (assuming the current bonus rate)
What are the drawbacks of this scheme?
The return from this scheme is around 6% with a life insurance cover of 10 lakhs. Some banks are offering this rate of interest for their savings bank account. Such schemes are not flexible. If you want to reduce / increase the investment, it is not possible. Once you join the scheme, there is no escape route. If you stop paying premium, then the returns can be pathetic. If you surrender the policy after paying for few years, you may not get what you have already paid! It is also a trap.