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Are Money Back Investment Plans the Best Path to Secure Savings?

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Are Money Back Investment Plans the Best Path to Secure Savings?
November 01, 2023

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As India’s financial landscape evolves, we must identify the best ways to save and grow our hard-earned money. Money Back Investment Plans have emerged as the preferred option for many. Let’s better understand these plans and evaluate if they can secure savings for the future.

Understanding Money Back Plans

A money back plan is a life insurance product that combines life coverage with savings. These plans offer periodic payouts during the policy term. Money back investment plans ensure you can access a portion of your investment regularly.

The Insurance Component

Money back plans have a life insurance component. These policies offer insurance coverage for the policy duration. Your beneficiary or nominee receives a payout if anything happens to you while the plan is active. The payout provides your loved ones financial protection and support.

How Do Money Back Plans Secure Your Savings?

  • Guaranteed Returns

    Your money back plan offers assured returns on your investment. You receive a fixed portion of the sum assured at predetermined intervals. The payouts empower you to fulfil your goals, including paying for your child’s higher education, purchasing a home, or funding your dream vacation.

  • Tax Benefits

    Money back plans offer tax benefits under Section 80C* of the Income Tax Act. You can claim deductions of up to Rs. 1, 50,000 annually against the premium amount. The returns earned are tax-free under Section 10(10D) of the Act. These dual benefits make these policies a tax-efficient investment option.

  • Liquidity and Financial Discipline

    The periodic payouts provide liquidity, helping you meet your financial needs without breaking other long-term investments and savings. The fixed payout intervals encourage financial discipline. You can plan your expenses and savings accordingly.

  • Evaluating the Drawbacks

    While a money back plan offers several benefits, it also has a few drawbacks. 

  • Inflation Concerns

    Money back plans provide guaranteed returns. However, they may not keep pace with inflation. The returns are predetermined and may not grow at the same rate as inflation or other investment avenues. Over time, the returns may lose their value compared to inflated costs.

  • Limited Flexibility

    These policies come with a fixed policy tenure and premium payment terms. As your financial situation changes and evolves, you may struggle due to the plan’s inflexibility. Requesting to liquidate funds in advance could attract penalties and reduce future payouts, disrupting your finances further.

Is a Money Back Plan Right for You?

You must evaluate your financial goals and risk tolerance before purchasing a money back plan. These policies provide life insurance coverage and assured payouts at regular benefits. It works best for individuals looking to fulfil various long-term goals. However, these plans do not help grow your wealth exponentially. Consider what’s best for you based on your unique needs.

Money back plans offer financial stability and security. However, they should be only one part of your financial plan. Ensure you back up your policy with other savings and investment tools. Remember, you must secure your savings with a plan that suits your circumstances.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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* Subject to conditions specified u/s 80C of the Income tax Act, 1961.

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