What is the Maturity Amount of Money Back Plans?
Table of Contents
Life is full of risks, but the biggest risk is unarguably the risk of life. All of us have responsibilities toward our families, and we work hard daily to fulfill them. No matter how good you are at keeping up with responsibilities, a single unexpected event can leave your loved ones alone and helpless. You can eliminate the risk of creating a financial burden on your family due to your sudden death by purchasing a term insurance.
Term insurance is the most popular type of life insurance. It provides a sum assured to the family in case of the policyholder’s demise. There are also a few plans in the market which return the amount of premiums paid in case the policyholder is alive till the end of policy duration. These plans are called money back plans and this article will cover the important features of a money back term insurance, maturity amount, how the maturity amount is calculated, and the benefits of term insurance.
What is Maturity Amount?
Maturity amount is the total money a policyholder gets when a policy terminates. There are 2 cases of term insurance getting exhausted. Either the policyholder dies within the policy duration and his/her family receives the sum assured, or the policy meets its expiry date while the policyholder is alive. A traditional term insurance plan does not provide any benefits to the policyholder in the later case, but a money back plan draws the attention of potential customers who are not completely convinced on purchasing a term insurance.
A money back term insurance returns the total sum of premiums to the policyholder, this happens in the case when the policy has expired and no claim has been made. This way the policyholder safeguards their family from the risk of a sudden financial burden, as well as at the end of the policy period they get back the amount paid for the protection.
Let’s understand this with an example,
Amar and Akbar visit an arcade area where they need to purchase a fun card in order to pay for food and games. Amar gets a fun card that has a minimum recharge of 500 Rupees and does not allow him to cash out the remaining unused credit. This is an example of traditional term insurance where if you do not file a claim (does not spend the complete amount at the arcade), you can not get your money back (no refund will be provided). On the other hand Akbar buys a fun card which has a minimum recharge of 800 Rupees and allows him to cash out the unused credit. This is an example of money out or money back term insurance which is more expensive than the traditional insurance but returns your money in case you did not file a claim.
When and How Maturity Amount is Received?
Maturity amount is received when a term insurance policy terminates either at the end of duration or in case the policyholder dies during the policy period.
The first case where maturity amount is received is when a claim is made after the death of the policyholder. In such cases the nominees of the policyholder are subjected to receive the assured amount.
The other case where the insurer pays the maturity amount is after the policy expires and the policyholder is alive. In this case the policyholder receives the sum amount of all the premiums paid throughout the policy period. Note that this return is given only with money back term insurances and there is no return of premiums for other term insurances.
Best Money Back Plans With Good Maturity Amount
There are many Best Money Back Plans among which you can opt for your bright future. Following are some of the Best Money Back Plans.
1. BSLI Vision Money Back Plus Plan
Policy Tenure of 20, 24, and 25 Years. Minimum Maturity Amount of Rs. 1,00,000
2. Bajaj Allianz Cash Assure
Policy Tenure of 16,20, 24, and 28 Years. Minimum Maturity Amount of Rs. 1,00,000
3. HDFC Life Super Income Plan
Policy Tenure of 16-27 Years. Minimum Maturity Amount of Rs. 1,28,377.
4. ICICI PRU Cash Advantage
Policy Tenure of 15, 17, or 20 Years. Minimum Maturity Amount of Rs. 1,00,000.
5. IndiaFirst Cash Back Plan
Policy Tenure of 9, 12, and 15 Years. Minimum Maturity Amount of Rs. 50,000.
6. PNB Metlife Money Back Plan
Policy Tenure of 10 Years. Minimum Maturity Amount of Rs. 2,50,000.
How To Calculate the Maturity Amount for Money Back Policies?
If the policyholder loses his life during the policy period, their family members will get the cover amount as mentioned on the policy documents.
If a money back term insurance expires while the policyholder is alive, the sum of premium amounts is returned to the policyholder. However there is a GST deduction applied to the returned amount.
Formula and Calculation Process
Return of premium is calculated by subtracting the GST deductions from the total premium paid. GST deduction on premiums paid in the first year is 4.5% and 2.5% for the rest of the following years.
Return of premium = Total Premium Paid - ( Premium Paid in First year * 0.045) - (Premium Paid after First Year* 0.0225) - (Total Paid Premiums * 0.18)
Where:
Return of premium (ROP) => The calculated maturity amount.
Total Premium paid => Net total of premium paid throughout the policy duration.
Premium paid in first Year => Total premium paid during the first year of policy.
Premium Paid after First Year => Total premium paid after first year of policy.
0.045 => 4.5% GST rate applicable to the first year's premium.
0.0225 => 2.25% GST rate applicable to premiums paid in subsequent years.
0.18 => 18% GST rate applicable for term insurance premiums in India.
Let’s take an example,
Supposedly a policyholder pays Rs 5,000 premium every year for 10 years. Now when the policy expires:
Total premium paid = 5,000 x 10 = 50,000
Premium paid in first year = 5,000
Premium paid after first year = 50,000 - 5,000 = 45,000
So the formula here for our ROP is,
ROP = Total Premium Paid - ( Premium Paid in First year * 0.045) - (Premium Paid after First Year* 0.0225) - (Total Paid Premiums * 0.18)
Hence,
ROP = 50,000 - (5,000 x 0.045 ) - ( 45,000 x 0.0225 ) - ( 50,000 x 0.18 )
ROP = 50,000 - 225 - 1,012.5 - 9,000
ROP = 39,762.5
Therefore, Return of Premium = 39,762.5 Rupees
To find out the total GST deduction, subtract the return of the premium from the total premium paid.
Total GST deducted = Total premium paid - ROP
Total GST deducted = 50,000 - 39,762.5
Total GST deducted = 10,237.5
Factors Affecting The Maturity Amount
GST deduction on premium is the only factor which affects maturity amount in case of policy expiring while the policyholder is alive. The premium paid in the first year is charged with 4.5% and the rest of the amount is charged with 2.25%.
Benefits of Maturity Amount in Money Back Plans
Money back term insurance has many benefits. Following is the list of most common benefits to consider while purchasing a policy:
Guaranteed Return: With a money back policy you are guaranteed a return unlike the traditional term insurance which provides cover only in case of policyholders death. If a money back policyholder survives the policy period, he will get returns of premium paid which can be a financial boost.
Financial Security: Knowing that a sum of money will be paid at the end of a policy creates a peaceful mindset regarding long term financial planning.
Regular Payouts: There are certain money back policies that offer periodic payouts throughout the policy period. This can help a person meet his short term financial needs.
Acts as Savings: Money back policy adds your money and keeps it as a saving in case a policyholder survives during the policy. This strengthens one's finances and the amount can be used in various long term goals like children's education.
Life Coverage: The primary need of money back term insurance is to cover the financial need of your family after your demise. This benefit provides financial protection to your family so they are able to manage their needs and are not dependent on someone else.
Conclusion
The Maturity Amount plays a major role while choosing an Insurance Policy. In the case of Money Back Plans they play an important role because the value of the Maturity Amount decides the value of the Premium that you have to pay and also the Survival Benefits are a percentage of the Maturity Amount. So, the more the Maturity Amount the more the Survival Benefits.
FAQs
Ques 1. What are money back plans?
Ans. A money back plan gives the benefits of a term insurance i.e covers the life of policyholder and gives the sum assured in case of policyholders death.
Ques 2. What is the maturity amount?
Ans. Maturity amount is the money you get back at the end of the policy in case the policyholder is alive.
Ques 3. Do we get the full amount of premium back in case policy expires?
Ans. No, maturity amount is less than the net premium paid. This is because GST is deducted when you get back the money.
Ques 4. How much GST applies on paying premiums?
Ans. When we pay a premium for our insurance plans, a 18% GST is charged on paying each premium.
Ques 5. Is term insurance and money back plan same?
Ans. No, term insurance does not provide a maturity amount in case a policyholder survives the policy duration. On the other hand, the money back plan offers a maturity amount while also providing the benefits of a term insurance.
Also Read:
Money Back Policy - Features, Benefits & More
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.
