Money Back Vs Endowment Plan – Which One to Choose?

Buying life insurance policies are mandatory these days, it gives you the best way to protect your family and at the same time get tax rebates from the government of India. Before buying any insurance plan you must compare benefits, term of the policy and premiums with each available option. However, choosing life insurance plans is a confusing job. With a wide range of products, most people tend to get confused and end up in investing on wrong products. While life insurance is necessary, investing in the right plan is highly important. There are a lot of products like ULIPs, money back policy or endowment plans from top companies are available with lucrative offers. An ULIP gives you the option to invest money in various securities & achieve returns w.r.to market value, whereas other products can offer a fixed sum of return.

If you are confused, then compare the benefits offered by popular insurance companies and invest according to your requirements.

There are two types of policies that are very popular namely, money back and endowment plans. To know more, find below the difference between these two plans and invest accordingly.

Money Back Plan

In these kind of plans, a policyholder gets money back during the tenure of the policy. Usually, a fixed percentage of the sum assured is given on completing every cycle of 4 or 5 years of policy duration. For example, in a 20 years’ money back policy, with a sum assured of Rs. 10 Lac, it can give you a money back of 10% after 4 years of policy terms and 15% after completion of 8 years, provided you are paying the premium without fail. There would be 4 money back points where you will be given a particular amount according to the money back plan you choose. At this point of time, LIC money back policy is very popular.

Endowment Plan

On the other hand, endowment plans provide you the sum assured amount after policyholder completes the entire policy terms, it calls the maturity amount with bonus and all. However, nothing would be given in between the policy duration.

The Benefits

Both are traditional plans and should be invested in wisely. A traditional plan offers a steady growth benefit, it will not only give you a huge return on investment but also offer a reliable opportunity to save and get an insured value, if anything unfortunate happens to you. Though, the sum assured is somewhat small, but it does offer a value for money. Currently, LIC of India is one of the popular companies that offer around 7 endowment plans with various benefits. Other private sector companies also offer 1-2 plans with competitive benefits & premiums.

Differences between Endowment, Term & PPF

Plan Name

Sum Assured

Term (Years)

Premium (Yearly)

Return at the end of 10 years (Rs.)

Endowment

10 Lac

10

Rs.32,195

Rs.3,21,950

Term Plan

10 Lac

10

Rs.2,751

NA

PPF

NA

10

Rs.29,444

Rs.4,60,666

On the other hand, endowment plans are for young people, where the person can wait a longer duration to get the sum assured amount with bonus benefits. Here, a young person if invested in his or her 20s, he can get the money when he or she turns 36 or 40 (policy term here – 16 years & 20 years respectively). However, person at their 30s can also invest according to the requirements. Moreover, the premiums of these plans are lower than money back plan.

Let’s do an analysis on each of these plan by taking particular plans provided by Life insurance corporation of India (LIC). A comparison of premiums between LIC New endowment plan & 20 years LIC money back policy may give you an idea of what you need to focus on while investing on these plans.

Let’s assume a 30 year old person wants to get a sum assured amount of Rs. 10 Lakh and with 20 years of policy term. Find below the premiums for both the plans:

Particular

LIC New Money Back Plan (820)

LIC New Endowment Plan (814)

Term

20 years

20 years

Age

30 years

30 years

Sum Assured

Rs 10 Lac

Rs. 10 Lac

Premium

Rs 74,518/-

Rs. 47,617/-

Archana Singh is a Finance Advisor and Investment Planner. She Also does like to share finance and insurance related write ups on the web. Follow Archana on her social networking sites to know more about her.