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Difference Between Money Back Plans and Endowment Plans

When you contemplate buying a life insurance policy for the first time, these two options are the most fundamental ones that cross your mind. Various similarities between these two products make the selection process difficult. Many people get perplexed when deciding on which one to choose from, endowment plan vs. money back plan.

Difference Between Money Back Plans and Endowment Plans

What is an Endowment Plan?

An endowment plan is essentially a life insurance policy that presents life insurance coverage to the insured person and enables them to save funds periodically over the policy's tenure. When the person insured outlives the Term of the policy, the insured person will receive an accumulated amount at the time of maturity.

What is a Money Back Plan?

In a money-back plan, the policyholder will receive a portion of the amount assured at frequent periods, as a tremendous return on investments, rather than receiving the lump sum at the maturity period. If the insured person survives the policy term, then, in that case, it becomes similar to an endowment policy but arrives with the advantage of recurrent and explicit payouts.

Difference between Endowment and Money Back Plan

While both endowment plans and money-back policy fulfill the purpose of a whole life insurance plan, there is some difference between money-back policy and endowment policy.

Hence, to assist you in making an informed decision between endowment vs. money back plan, here are some important points of distinction between the two.

1. Term and maturity benefit

In an endowment plan, the amount guaranteed and suitable rewards are paid to the insured person at the time of maturity if they outlive the policy term. There are no provisions for making payment during the endowment plan.

On the other hand, the insured person under a money-back policy will receive a portion of the sum assured at the pre-decided periods during the policy term. In addition to this, the insured person will receive the remaining sum assured upon maturity if the policyholder outlives the policy term.

2. Mortality benefits

The endowment policy and the money-back plan will give the amount guaranteed and appropriate bonuses if the insured person departs during the policy's tenure. However, in a money-back plan, in case of the policyholder's death, the entire sum assured is paid to the dependents of the insured person, irrespective of the premium installments paid.

This is the special feature that differs between an endowment and a money-back plan, and this is what makes a money-back plan a bit more expensive.

3. Suitability

An endowment plan is most beneficial for individuals looking to save funds for attaining all their long-term economic goals like purchasing a house, funding their kid's higher education fees or for retirement.

On the contrary, a money-back policy is suitable for individuals who will need a steady revenue stream to fulfill all their short-term economic goals like paying EMIs, household expenses, children's school fees, and many more.

4. Risk

The risk associated with endowment plans is relatively low as compared to that of a money-back policy. Also, the survival and mortality advantages are higher in an endowment plan and that too at a lower premium installment.

Advantages of Buying an Endowment Plan

a. If the insured person outlives the policy term, the amount assured and the rewards (if any) will be paid to the insured person at the end of the policy term.

b. In the event of the insured person's demise, the amount assured and the additional rewards are given instantly.

c. Endowment policies usually operate by amassing funds over an extended period. The sum invested in the form of an endowment plan will cover all the financial risk that you face in life and present you with a lump sum amount at the end of the policy term.

Advantages of Buying a Money Back Plan

a. The insured person under the money-back plan will receive a set portion of the sum ensured at periodic intervals. In addition to this, the remaining sum will also be paid along with interest to the insured person when the policy term expires.

b. If the insured person departs during the money-back policy term, the total amount assured will be given to the beneficiary or nominee of the policyholder along with all the applicable interest and bonuses.

c. The money-back plan is perfect for satisfying all your set short-term financial purposes so that you and your loved ones always remain guarded against all sorts of unforeseen financial risks.

Conclusion

After all the points on money back vs. endowment plan, you must have understood that both endowment plans and money-back policies come with their own set of advantages and disadvantages. However, according to various modern-day investors, an endowment policy is considered slightly better than a money-back policy.

Also read: Money Back Policy The Best Investment Option

Why Go For Money Back Policies - HDFC Life

Disclaimer

This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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