LIC Money Back Policy vs simple LIC policy: What is better for you? Experts have this to say

LIC Policy: An LIC policy is a contract between the insured and the insurer where in the exchange of premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. Like many other insurance companies, the Life Insurance Corporation (LIC) has introduced various types of insurance plans, including the LIC Money Back Policy. When it comes to maturity, the LIC Money Back Policy can be categorised into two types — LIC Money Back Policy 20 years and LIC Money Back Policy 25 years. According to tax and investment experts, the LIC Money Back Policy falls under the EEE (exempt-exempt-exempt) category, which means an investor has the luxury of getting income tax benefits on his or her LIC Policy premium payments, interest earned on it and the maturity amount - provided the net premium paid under the LIC policy is 10 per cent of the net sum assured. According to them, the LIC Money Back Policy is not an exception to it.

Speaking on the LIC Money-back Policy, Manikaran Singhal, a SEBI registered tax and investment expert said, "LIC Money Back Policy is of two types — 20 years maturity plan and 25 years maturity plan. In both plans, the investor gets 15 per cent to 20 per cent money-back of the sum assured after five years gap. In this LIC policy, one has the luxury of income tax benefit on the LIC policy premium payments, interest earned on it and the net maturity amount. However, this income tax benefit is available only when the net premium paid is one-tenth of the sum assured in the LIC Money-back Policy." He said that in LIC Money-back Policy, one would get the balance of the sum assured plus the bonus as maturity amount at the time of completion of LIC policy.

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Elaborating upon how LIC Money-back policy is different from other LIC policies, Jitendra Solanki, a SEBI registered tax and investment expert said, "In LIC Money-back Policy, an investor gets 15 per cent or 20 per cent (whichever is mentioned in the LIC Policy) of the sum assured after a gap of every 5 years. Means, if the sum assured in a LIC Money-back policy is Rs 3 lakh, then the LIC Money Back Policyholder will get 15 per cent or 20 per cent of Rs 3 lakh after a gap of five years during the period of LIC policy." 

On whether one should buy the LIC Money Back Policy, Solanki said that one should avoid this money-back offer because it affects one's maturity as the benefit of compounding goes down in LIC Money Back Policy. He said that it's better to go for a simple LIC policy without money-back offer because in that case one will get a higher bonus and compounding benefits on one's interest earned in the LIC premium payments.