Simple Steps To Calculate Your Money-Back Policy
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A money back insurance plan pays out the same maturity benefits in the form of several guaranteed “survival benefits" which are staggered evenly throughout the course of the policy. So, a money back insurance policy is an endowment plan with the benefit of regular liquidity.
Money-back policies are designed in a way that guarantees a payback at regular intervals, as some percentage of the sum assured. Further at the time of maturity, a certain percentage of the sum assured is guaranteed along with loyalty and accrued bonuses. The loyalty bonus is a fixed percentage defined in the plan. The accrued bonus however is declared at the end of each year by the insurer. This depends on the actual returns generated by the insurer on its investments.
To calculate the ROI, all expected cashflows and premium payments should be discounted to the present day. The discount rate at which the present value of all future cash flows and all premiums are the same would be the effective yield of such a plan.
How Does Money Back Policy Work?
A Money back policy is a type of policy that offers policyholders Survival Benefits as well as investment opportunities in addition to Maturity Benefits.
An average money back policy with a 20 year tenure would thus pay the policyholder what is known as a ‘Survival Benefit’ a few years after the start of the policy. Around 20% of the Sum Assured would be paid out periodically, while the balance would be paid out at the time of policy maturity with a bonus, if any. In the event the insured individual does not survive till the policy maturation, the nominee would receive the Death Benefit (the entire Sum Assured) and the policy would be terminated.
Let’s assume in a money back policy, you are expected to pay Rs. 10,000 annually for the next 10 years. Further, you are assured payment of Rs. 30,000 on 3rd, 6th and 9th year anniversary of the policy. Also, at the time of maturity at the end of 10 years, you are assured a payout of additional Rs. 30,000. In such a case, the effective yield of the plan would be 7.5%.
Money Back Policy Calculator
For the purpose of computing the premium amount as well as the benefits that will be accrued, a number of insurance companies provide individuals with policy calculators. These calculators can be used to approximate the returns as well as costs associated with the policy in question. The individual can then choose to apply for the policy after looking over the figures to see if they are in line with his/her requirements.
A money back policy calculator computes the average premium to be paid based on the policy tenure and the Sum Assured. Additional details such as the age of the policyholder are also factors considered for calculation. On entering the figures, the calculator computes the maturity benefit payable at the time of policy maturity as well as the premium payable.
Conclusion
A money back policy is far less risky than a mutual fund investment. In addition to being a tax saving investment with guaranteed returns during the course of the term, it also provides comprehensive life insurance cover – which is a win-win situation for the investor (and his dependents).
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