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.
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