Money back policy

What is a money back policy?

A money back policy is a life insurance savings plan that pays out in instalments while the policyholder is alive, instead of in a single amount at the end. At set points in the term, for example every five years, the insurer pays a stated percentage of the sum assured as a survival benefit. Whatever remains, plus any bonuses, is paid at maturity. If the life assured dies during the term, the nominee receives the death benefit set out in the policy, which in many designs is the full sum assured regardless of instalments already paid.

Insurers and actuaries also call it an anticipated endowment, because part of the endowment's maturity value is paid early. Money back plans can be participating (with bonuses) or non-participating (with fixed benefits).

How a money back policy works in India

A money back plan is a non-linked savings product, so it follows the same rules as an endowment policy under the IRDAI (Insurance Products) Regulations, 2024 and the Master Circular on Life Insurance Products of June 2024: a minimum term of five years, minimum death cover of 7 times the annualised premium below age 50 and 5 times from 50, a death benefit of at least 105% of premiums paid, and a non-zero positive return on survival benefits taken together.

The survival benefits change how two other rules work:

• Surrender value is net of payouts. The guaranteed surrender value is a percentage of total premiums paid less any survival benefits already paid. A customer who has already received one or two instalments will find the surrender value much lower than an equivalent endowment's. The special surrender value must also allow for survival benefits already paid.
• Paid-up value is adjusted. If premiums stop after the policy has acquired a surrender value, the policy becomes paid-up with a reduced sum assured, and the insurer may adjust that reduced amount for survival benefits already paid. See paid-up value.

A typical design looks like this (the percentages vary by product and are set in each insurer's filing):

Tax on survival benefits

Survival benefits and the maturity amount are tested together with the other conditions in the former section 10(10D) of the Income-tax Act, 1961, now carried into the Income-tax Act, 2025: the premium-to-sum-assured limit and, for policies issued on or after 1 April 2023, the ₹5 lakh aggregate annual premium limit. Where a payout is taxable, the insurer deducts TDS on the income portion. See Section 10(10D) and TDS on insurance payouts.

What a money back policy means for distribution

Money back plans sell well because customers can see money coming back, and that same feature causes most of the misunderstanding.

• Goal mapping. The plan suits a customer who knows of expenses at fixed dates, such as school or college fees. A good adviser lines up the payout years with those dates instead of picking the product first.
• The return conversation. Getting instalments back early feels like a good return, but it lowers the amount left invested, so the effective yield over the full term is usually lower than customers assume. Walking the customer through the 4% and 8% columns of the signed benefit illustration, and the policy year-wise surrender values that must now be shown separately, is the honest way to set expectations.
• Product names. The master circular bars product or benefit names that mislead or misrepresent the benefits. Calling a survival benefit a "return" or "bonus" in a pitch, when the contract calls it something else, invites a complaint.
• Servicing moments. Each survival benefit is a contact point. Updated bank details and KYC avoid failed payouts, and the payout date is a natural time to review cover and nominations. Unpaid survival benefits sitting with the insurer are a common source of unclaimed amounts.
• Persistency. Customers sometimes stop paying after the first instalment, treating it as a refund. The adviser should explain at the point of sale that later instalments and maturity depend on paying premiums for the full premium paying term.
• Surrender after a payout. When a customer asks to surrender, the adviser should explain why the value is low (instalments already received are deducted) and whether a policy loan, which is mandatory on non-linked savings plans with a surrender value, would meet the need instead.