A Money back policy is one of the most popular tax-saving plans in India when it comes to the requirement of generating regular payouts similar to income. It is preferred mostly by those individuals who require the regular flow of liquidity.
It provides the dual benefits of insurance as well as an investment under a single roof. The only difference between a money-back plan and other tax-saving plans is that it provides a regular payout after a short grace period of 3 years while other schemes provide a lump sum amount at the end of the policy tenure.
In a money back policy, the risk is quite low and the investments are done in a balanced environment of both volatile and non-volatile instruments to maintain a promised return to the insured by the insurance company. Hence it is one of the most secure ways to invest as an insured person can avail of fixed promised returns at regular durations.
A money-back policy also provides all the standard protection benefits like maturity benefits, death benefits, survival benefits, etc., and life coverage for the protection of insured persons and their families in case of any mishappenings and demise. One large factor because of that, people generally tend towards money-back policy is the broad tax benefits it provides on the interest amount.
Let’s discuss all these functionalities and features of a money-back policy and how to save income tax with it.
Features of money back policy
A money back policy contains three main objectives that are premium payments at the end of the grace period, regular payouts at promised durations, and ongoing policy functionalities until the end of the policy tenure.
Various unique features take part to fulfil these 3 objectives of a money-back policy. Let’s discuss them in detail because they lay the foundations of a money-back policy that performs efficiently in every aspect including tax deductions along with other stand working.
1. Lower risk investments
In a Money back policy, the risk appetite risk advancements are quite low. The reasons behind these lower risk rates are simple that the investments made in these schemes are highly balanced between volatile and non-volatile instruments like investments in cash bonds, securities, etc. Also, the investments are made by field experts because the insurance company already promised the decided returns on a particular investment payment to the insured person.
It is a belief that as per lower risk, the returns generated from the money back policy are also low in comparison to any other scheme. Well, it is a misconception because the investments are in the hands of field experts so one can expect the highest possible returns from the invested instruments.
2. Covers standard insurance premise
At the end of the day, a money back policy is a dual benefit saving plan. Hence along with the investments it also comprises the insurance aspects. In the insurance aspect, there are mainly three objectives that the money-back plan fulfils are Standard Policy benefits and Additional benefits.
In standard policy benefits, the insured persons and their families avail the benefits of life coverage along with various benefits that come as mandatory as per Insurance Regulatory and development Authority (IRDA) norms that are maturity benefits, death benefits, etc.
In Additional benefits, all additional benefits from insurance companies fall like tax and charge-free regular payouts, loyalty benefits, revisionary benefits on regular payouts, etc. These add up to the regular payouts and enhance them over decent credits.
3. Fixed and regular liquidity flow
As we discussed above, the money back policy is lower risk investments because firstly the investments are highly balanced and secondly they are done by the experts.
Hence as per the insurance company promise, the insured is eligible to avail of the benefits of fixed returns and regular payouts with additional benefits as credits to maintain streamlined liquidity funds.
4. Highly optimized Schemes
A money back policy is highly optimized as compared to any other scheme available out there. An optimized plan means that it considers both credentials that are the duration of the scheme as well as the needs of the insured person for that they enrolled in particular money-back plan. And then designed an investment schema to generate regular payouts according to those two credentials. It is one of the most important aspects of a money-back policy that no other scheme provides.
How does a Money back policy help to save income tax?
Money back policy is one such great way to avail income tax deductions on larger prospects. On a general rule of thumb, an insured person can avail up to 1.5 lakhs rupees within a financial year on a Particular money-back policy under section 80C of the Income Tax Act, 1961. However, these tax deductions are only limited to yourself, your spouse, and one of your dependent children provided that they are of minimum threshold age.
The tax deduction amount is large in a money-back plan and that is one of the factors of its popularity. However, there are several restrictions imposed by IRDA to avail the benefits of these tax deductions.
●If you enrolled in the scheme after 1st April 2012, then you can only avail of tax benefits on the total premium amount that should be valued at a maximum of 10% of the amount assured within a money back policy.
●If you enrolled in the scheme after 31st March 2012, then you can only avail of tax benefits on the total premium at a maximum of 20% of the amount assured within a money-back policy.
●If you enrolled in the scheme after 1st April 2013 and also suffer from any disability and illness then can avail of tax benefits, if you haven’t paid a premium to 15% of the total amount assured.
According to the statistics of the individuals enrolling in money back policy over traditional ways like fixed deposits, it is optimal to say that money back policy is the new common necessity in the investment and insurance industry.
This guide helps you as a beginner in money back policy to explain its key benefits, features, and functionalities along with how to save income tax with a money back policy In India.