While considering their financial plans, people are on the lookout for suitable savings plans that will help them meet their long-term or short-term goals. A life insurance savings plan, such as an endowment plan or a money-back life insurance plan is considered to be quite useful since they both offer savings along with a comprehensive life cover. Both, endowment and money-back plans, have some similarities in their benefits and returns, leading to customers getting confused between them. This confusion may result in the purchase of the incorrect policy. Hence, let’s understand in depth what exactly these policies entail.
What are Endowment plans?
An endowment plan is the insurance policy designed to pay a lump-sum amount after a specific period in the event of the policyholder’s death or on maturity. An endowment plan is essential for investors who wish to meet their long-term financial goals. Those who plan for future financial expenditures like their child’s marriage or a retirement plan should opt for the endowment plan. Endowment plans have higher premiums but will provide you with a guaranteed amount once the policy’s tenure is over. These plans provide the policyholder with the benefit of both insurance coverage and savings.
What are Money-Back plans?
A money-back plan is a life insurance policy that pays a specific percentage of the sum assured at periodic intervals throughout the policy term instead of the complete amount on maturity or as a death benefit. A money-back plan is an endowment plan which offers liquidity and hence, can also be referred to as a short term endowment plan. Individuals who wish to get insurance coverage and payouts at regular intervals to meet their immediate financial goals should choose a money-back plan. This plan is quite beneficial for taking care of financial emergencies that may emerge during a plan’s tenure. Money-back plans are helpful for those who are nearing retirement, as these plans provide a steady flow of income even after the individual has retired.
Similarities between an Endowment Plan and Money-Back Plan
Endowment plans and money-back plans both are life insurance savings plans and provide the policyholder with death benefits as well as maturity benefits. Individuals can use both these plans as insurance-cum-investment plans. Both the plans have high premiums because of their extensive features, and the investments made through these plans do not depend on the market’s performance.
This makes endowment plans and money-back plans a good choice for those seeking guaranteed financial returns.
Differences between Money-Back Plans and the Endowment Plans
While money-back policies and endowment policies are essentially savings plans, there are a few differences that should be noted:
| Money-Back Plans | Endowment Plans |
| Provides a regular flow of income to meet immediate needs and short-term financial goals. | Ideal as a savings plan to meet long-term financial goals such as retirement, child’s marriage, etc. |
| You get a percentage of the sum assured at regular intervals throughout the policy term. The remaining sum assured and bonuses (if applicable) are paid on maturity. | The predetermined sum assured as well as the bonuses (if applicable) are paid on maturity, if the policyholder survives the term., |
| The average tenure of a money-back plan is 5-25 years. | The average tenure of an endowment plan is 10-35 years. |
| It cannot be used to get a loan since part of the sum assured is deducted during the policy term. | An endowment plan can be used as security against a loan. |
Knowing the differences between the two types of savings plans helps when you are looking for ideal insurance-cum-saving schemes in India. The choice between an endowment plan and a money-back policy mainly depends on your investment objectives and how you want to fulfil them.
