Term Life Insurance vs Survivor Benefit Plan – Which one is best?

When we think of purchasing a life insurance product like a term insurance plan, there is one aspect of it that always confuses most policy buyers. That is, whether they will receive any return on their investment if they survive the policy term.

This is the reason some investors are wary of buying a pure insurance plan because they feel all those premiums would go to waste if they survive the term. However, there is a different life insurance product called a money back plan, which has an investment component that returns part of the premium back to the policyholder.

So, what should it be? Should you buy a pure term insurance plan, or would a money back plan be better? Let’s compare the two and find out.

Term Insurance Plan

A term insurance plan is a very simple and pure insurance product. You purchase a policy with a specific assured sum that will be the life cover. You pay the premiums for the duration of the policy tenure. In case you pass away within the policy term, the person you nominated would receive the entire assured sum as a death benefit. They can use this payout to pay for major expenses and maintain their financial stability in your absence. If you survive the policy term, then there is no payment or return of premiums.

Money Back Plan

A money back plan is an endowment plan that is a combination of term insurance and investment. You pay your premiums and are guaranteed an assured sum as death benefit. However, after a certain specified term, you are paid a percentage of your premium as money back at regular intervals. This is called the survival benefit. In case you pass away, the nominee will receive the death benefit as well.

Difference Between Term Plans and Money Back Plans

To make a sound choice, we must compare the two products with respect to some important parameters:

Life Cover Available

The entire point of buying a life insurance plan is to get adequate life cover so that your family can be financially stable in your absence. That is where a pure term insurance plan comes out on top.

Term plans offer large sums as life cover for very low premiums. Money back plans, on the other hand, cannot offer such high assured sums for similar premiums. You’ll either have to settle for a lower life cover or pay higher premiums for better coverage.

Return on Investment

In a term plan, there is no return on investment if you survive the policy term. Your premiums are paid to avail death benefit payment only and only if you pass away. If you survive the policy term, then the term plan lapses, and you’ll have to renew the plan or buy a new plan.

Money back plans offer a return on investment wherein a percentage of your premium is paid back to you after a certain period, usually the premium paying term. Once that time interval has passed, you’re paid the survival benefit on a regular basis. Life insurance protection also continues at the same time.

Tax Benefit

Both a term plan and a money back plan offer the same tax deductions under Section 80C. The returns gained like the death benefit, survival benefit, or maturity benefit are also tax-free.

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Which one is best?

A term plan and a money back plan are different products with different objectives. If you’re simply looking for a pure life protection plan with no hassles and adequate life cover, then go with a term plan. If you want to see a return on your investment even if you survive and are okay with a lower sum assured, then you can give money back plans a look.

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