A money-back policy is one of the most popular life insurance products in India — especially with LIC customers. It promises two things:
- Life cover during the policy term.
- Periodic payouts (a percentage of the sum assured) at fixed intervals before maturity.
On paper, it looks perfect — you get insurance protection plus money at regular intervals. But the truth is, a money-back policy isn’t for everyone, and in 2025, with better investment options available, it’s worth knowing if it suits your financial goals.
How a Money-Back Policy Works
| Feature | Details |
|---|---|
| Policy Term | Typically 15, 20, or 25 years |
| Payout Frequency | Every 5 years (varies by plan) |
| Life Cover | Full sum assured paid on death, even if money-back payouts already made |
| Maturity Benefit | Remaining sum assured + bonuses at term end |
Pros of Money-Back Policies
- Liquidity: Regular payouts during policy term.
- Dual Benefit: Insurance + partial returns before maturity.
- Guaranteed Returns: No market risk.
- Good for Fixed Expenses: Useful for goals like children’s school fees or anniversaries.
Cons of Money-Back Policies
- Low Returns: Usually 4–6% per year, lower than inflation.
- High Premiums: Costlier than term plans for same life cover.
- Opportunity Cost: Extra money could grow faster in mutual funds or PPF.
- Not Great for Long-Term Wealth: Most payouts get spent, leaving less compounding benefit.
Who Should Buy a Money-Back Policy
- People who need guaranteed periodic cash flow for planned expenses.
- Risk-averse investors who prefer fixed returns over market-linked growth.
- Parents who want a safe way to fund recurring educational costs.
Who Should Avoid
- Young professionals looking to build wealth — term insurance + investments is better.
- Anyone who can handle market risk for higher returns.
- People wanting maximum life cover for low premiums.
Case Example
Sunita, 40, bought a 20-year money-back plan with ₹10 lakh sum assured. She got ₹2 lakh every 5 years plus a ₹4 lakh maturity amount. Over 20 years, her total payouts were ₹12 lakh, but inflation-adjusted, it was worth much less than what she could have earned via term insurance + mutual funds.
Why It Matters
Money-back policies give the comfort of regular returns but may limit wealth creation. Understanding the trade-off between guaranteed payouts and long-term growth is key to making the right choice.
A steady trickle of money feels good — but make sure it’s not costing you long-term security. Share this eBharat.com guide so more people choose policies that truly fit their needs.
Internal Links:
- Guaranteed Return Plans – Are They Really Safe?
- Which Life Insurance Plan Offers Highest Maturity Value in 2025
- Term Plan vs PPF for ₹25K/Month Earners – Which is Better?
