Comparing Money Back and Endowment Plans-Part 1

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As I have already explained in my previous posts that money back policies gives better liquidity, but at the same time two negative side of Money Back policies are its high premium rates and low bonus rates compared to Endowment plans,

Because of this many people chooses Endowment plans.

.

Let us take an example as how Money Back plans offer better liquidity.


Age-30years

Term-25years

S.A-10,00,000


Pure Moneyback plan.

Yearly Premium-Rs. 52,738.00



Prm paid

Survival bnft

Total Amt Blocked

1-5th Year

2,63,690

1,50,000

1,13,690

6-10th Year

2,63,690

1,50,000

2,27,380

11-15th Year

2,63,690

1,50,000

3,41,070

16th-20th Year

2,63,690

1,50,000

4,54,760

21st-25th Year

2,63,690

4,00,000

5,68,450

Bonus

N.A

11,00,000

N.A

F.A.B

N.A

1,25,000

N.A














Pure Endowment plan.

Yearly Premium- Rs. 37,818.00


Prm paid

Survival bnft

Total Amt Blocked

1-5th Year

1,89,090

N.A

1,89,090

6-10th Year

1,89,090

N.A

3,78,180

11-15th Year

1,89,090

N.A

5,67,270

16th-20th Year

1,89,090

N.A

7,56,360

21st-25th Year

1,89,090

N.A

9,45,450

Bonus

N.A

12,00,000

N.A

F.A.B

N.A

5,50,000

N.A




It must be noted that S.A for Endowment plan are paid at the end of term along with Bonus while in Money Back plan it is paid in parts during the term as survival benefit.


For the first five years person needs to pay Rs. 2,63,690 (Rs. 52,738.00 x 5).

But at the end of 5th Year he will also receives Survival Benefit of 1,50,000.00

Due to this total amount blocked is only Rs. 1,13,690.

In Endowment for the same SA and same term it is Rs. 1,89,090 (Rs. 37,818.00 x 5).


For the next block of five years amount blocked is 2,27,380 and 3,78,180 respectively.


At the end in Money back plan you have Rs. 5,68,450 blocked as compared to Rs. 9,45,450 in Endowment plan(Nearly double ;-)].


So there is no surprise that total bonus for Endowment is higher then money back.


There is not much difference in normal bonus rates as LIC declares bonus for pure endowment at around 48/1000, while for Money Back it declares bonus at around 44/1000. But F.A.B is much high in Endowment plans(550/1000 for 25 year term as compared to 125/1000 in Money Back plans).


In the coming post I will explain how to utilize Survival Benefit.





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