While choosing which plan to purchase, savings & life insurance coverage are both given equal importance. Though there are many plans available in the market that offer insurance cum insurance benefits, the two most renowned plans, namely, endowment & money back plans, should be compared in this article to help you make an informed decision.
What is an Endowment Plan?
An endowment plan is a kind of life insurance plan which includes a lump sum payment either on the policyholder’s death or maturity of the plan. It best suits those who are futuristic & want to look for long-term investment options & are planning for some future events, such as their retirement, their child’s marriage, etc.
Benefits of an Endowment Plan
Provided are the benefits of an endowment plan:
- High Liquidity
- These plans are highly liquid in comparison to other plans.
- Increased Returns
- This plan offers high returns due to its compounding power.
- High Flexibility
- It involves making a payment of a premium in the short run against sustained benefits, hence offering flexibility in making payments for the premium.
- Lower Risk
- These plans involve a low level of risk.
- Loan Options
- It allows raising a loan against the plan whenever required without any collateral.
What is a Money-Back Policy?
A Money-Back plan is a kind of life insurance plan, which includes paying a certain specific percentage of the sum assured regularly. It best suits those individuals looking for short-term investment options, financial security, & regular payments.
Benefits of a Money-Back Policy
Provided are the benefits of a money-back plan:
- Regular Income Source
- These plans offer a regular stream of income over a specified time period, along with the maturity benefits.
- Additional Bonus
- Bonuses are added to this plan as a revisionary bonus to be paid at the time of maturity.Â
- Offers Insurance Coverage
- Along with an investment tool, it also acts as an insurance product, which provides financial protection to the family members of the policyholder in case of their sudden demise.
- Low Risk
- As this plan is not linked to the market, it offers guaranteed & assured returns.
Similarities of an Endowment Plan & a Money Back Policy
Let us first discuss the similarities between an endowment plan & a Money Back Policy:
- Participating & Non-Participating
- Both plans have two types, namely, participating & non-participating.
- Maturity Benefits
- Under both plans, if the policyholder survives the policy tenure, they will receive the maturity benefit from the insurance company, after which the policy will be terminated.
- Death Benefits
- Under both plans, if the policyholder dies, their nominees will receive the death benefits.
- Tax Benefits
- Under both the plans, the premium paid is eligible to get a tax deduction u/s 80C, a maximum of up to INR 1,50,000. The proceeds of death benefits received by the nominee are exempt from tax u/s 10(10D).
- Bonuses
- A bonus amount will be receivable in case of participating types of both plans, where the bonus is profit-linked. The insurance company will pay the bonus amount along with the maturity or death benefit.
- Loan FacilityÂ
- Both plans allow for the raising of loans against them, acting as collateral.
Difference between an Endowment Plan & a Money Back Policy
When comparing an endowment plan & a money-back plan, it becomes crucial to determine which one is the Best Savings Plan. Although there are some similarities, they differ on certain grounds. Let us examine the differences between them to gain a deeper understanding & make an informed choice.
| Basis of Difference | Endowment Plan | Money Back Plan |
| Objective | It offers a lump sum payout, which may be at the end of the policy tenure or upon the policyholder’s death. | It offers periodic payouts, which can be either a certain specific percentage of the sum assured or the amount of premium paid annually. |
| Death Benefit | If the policyholder dies at any time during the policy tenure, the death benefit would be received by their nominees. | If the policyholder survives the policy tenure, a survival benefit is paid. If death occurs afterwards, death benefits are also paid, irrespective of the fact that a survival benefit has also been paid. |
| Maturity Benefit | On the maturity of the plan, the policyholder will receive a lump sum along with a certain amount of bonus. | It includes receipt of periodic payouts throughout the policy tenure, & the remaining amount is received at the time of maturity in case the policyholder survives the plan. |
| Premium | It includes a high amount of premium due to the savings component being included. | The premium amount is lower than that of endowment plans, but higher than that of term plans. |
| Cash Value | It may include the accumulation of cash value over a period of time. | It may also include accumulation of cash value along with periodic returns, which is lower than that in endowment plans. |
| Best Suited | It best suits those individuals who are looking for dual benefits of insurance & savings. | It best suits those individuals who want liquidity on a periodic basis along with insurance. |
Which one to choose – Endowment Plan or Money-Back Plan?
To choose between the two plans, one can make a decision depending on the age at which you need financial support. In cases of short-term financial requirements, consider a money-back policy, which can be helpful in meeting routine expenses, loan repayments, & rent payments. On the other hand &, in case of long-term financial needs, where regular & huge funding is required, consider an endowment plan. Some of the examples of such requirements are buying a house, a child’s marriage or higher education, retirement planning, etc.
Conclusion
Both plans are a combination of insurance & investment, but the financial requirements should be evaluated while choosing a plan between the two. Where money-back plans offer a regular stream of income, the endowment plans focus on long-term wealth accumulation. Therefore, considering differences between the two helps in making an informed decision that well aligns with your financial objectives.
