The Secret of buying LIC Money Back Plan

Money back policy from LIC is a popular insurance policy, as it provides life coverage during the term of the policy and the maturity benefits are paid in installments by way of survival benefits in every 5 years. The plan is available with 20 years and 25 years term. In true sense, we do not think of unfortunate death when we are choosing Money back plan, but we like to consider this plan as a savings instrument that takes care of your insurance needs also and therefore, it also acts as a tax-savings tool.

But, we try to avoid taking higher sized policy due to the incremental increase in monthly premium rate, although we are capable of paying this small additional amount. We try to save Rs. 250-300 per month but we do not realize these savings are not worth enough in long run.

Having said that, we will show you here, why you must go for the higher sized policy. We will analyze the investments and returns between two options. The first one is the Money back plan for Rs.1,50,000 for 20 years and the second one is the Money back plan for Rs.1,00,000 for 20 years supported by the other ways of maximizing your returns.

Let us start with Rs.1,50,000 Money back plan for 20 years. The premium rate for this plan is Rs.825 per month. Therefore, your total investment is Rs.1,98,000 (Rs.825 * 12 * 20) here. And, you get Rs.2,20,000 (we consider here a bonus amount of Rs.70 per Rs.1000 for 20 year and Rs.10,000 as a loyalty addition, ie., total of Rs.70 * 150 * 20 and Rs.10,000) apart from your Sum Assured. Thus your total return is, Rs.3,70,000 (Rs.2,20,000 + Rs.1,50,000) which you get at following intervals:

Now, let us take a look, what we can do with the same investment amount. If you choose a policy of Rs.1,00,000, the premium rate is Rs.542 per month. Therefore, your total investment is Rs.1,30,080 (Rs.542 * 12 * 20). And, you get Rs.1,50,000 (a bonus amount of Rs.70 per Rs.1000 for 20 years and Rs.10,000 as a loyalty addition, ie., total of Rs.70 * 100 * 20 and Rs.10000) apart from your Sum Assured. Thus, your total return is, Rs.2,50,000 (Rs.1,50,000 + Rs.1,00,000), Net Gain being Rs.1,19,920.

Now, we are left with Rs.283 (Rs.825- Rs.542) per month, in choosing this policy. If you save this amount every month, you get straight Rs.67920 after 20 years. If you like to roll this small amount from the very first day with high interest, the best option available is Post Office Recurring Deposit Scheme. Otherwise, you can keep it in your savings bank account and allow it to grow at a rate of 4 percent per annum.

Remember, PO scheme is the best plan available in the market to roll small savings with highest rate of interest of 9 percent per annum compounded quarterly. You can enjoy this rate of interest only with the big amount of Rs.5000 and above in any bank. But, you are restricted to start with only Rs.283 here.

In these circumstances, you can start investing in PO recurring deposit scheme and your activities could be as follows.

Your Activities	Your Return	Your Investment
In first year, you open the PO Recurring Deposit with Rs.283 and every month, you continue to invest Rs.283 for 5 years.	You get, Rs.22,100 at the end of 5 years.	Your total investment in this period stands at Rs.16,980.
In the same line, you open the PO Recurring Deposit with Rs.283 in 6^th year, 11^th year and 15^th year.	Therefore, at the end of 10 year, 15 year and 20 year, you continue to get Rs.22,100.	Your total investment every time is Rs.16,980 only.
Remember, you do not consider the re-investment option here as you need a lump-sum at regular intervals.	Your total return in this 20 years is Rs.88,400.	Your total investment in 20 years is Rs. 67,920.

Therefore, to sum up, your return at regular intervals could be as follows if you are investing in Rs.1,00,000 Money back policy for 20 years and opting for PO recurring deposit scheme to roll your additional resource of Rs.283 per month.

It is clearly seen here, your gain is not better in this combination of investment if you compare it with the gain of Rs.1,72,000 from Rs.1,50,000 Money back plan.

Money Back plan of Rs.1,00,000 for 20 years, PO Recurring Deposit and Bank FD

Now, let us attempt the second investment combination to see, how best we can roll our Rs.283 per month resource for a better gain after 20 years. Remember, we need the money at regular intervals and we can not go for a FD for a long period.

You can open a savings bank account (interest rate 4 per cent per annum) at Rs.300 in first investment year and if you continue investing Rs.283 per month for a period of 3 years, you get Rs.11,175 at the end of 3 years and open a FD with this Rs.11,175 for a period of 5 years. At the end of 5 years, you get Rs.17,870 where the annual rate eof interest is 9.5 percent quarterly compounding. You can repeat this set of activities for 4 times in 20 years. And, in the last 8 years, you can again start investing in PO recurring deposit scheme as you would not get 3 years more to push your Rs.283 to Rs.11,175 for an another 5 year FD. Thus, year-wise break up of your investment and return of Rs.283 per month could be as follows.

Investment Year	Your Investment	Your Return
4^th year	You accumulated Rs.11,175 and put it in FD for 5 years for first time.	-
7^th year	You accumulated Rs.11,175 and put it in FD for 5 years for second time.	-
9^th year	-	First FD gets matured and you get Rs. 17,870.
10^th year	You accumulated Rs.11,175 and put it in FD for 5 years for third time.	-
12^th year	-	Second FD gets matured and you get Rs. 17,870.
13^th year	You accumulated Rs.11,175 and put it in FD for 5 years for forth time.	-
14^th year	You open the PO Recurring Deposit with Rs.283 and every month, you continue to invest Rs.283 for 5 years.	-
15^th year	-	Third FD gets matured and you get Rs. 17,870.
18^th year	-	Forth FD gets matured and you get Rs. 17,870.
19^th year	-	You get Rs.22,100 at the end of 5 years from PO recurring deposit scheme.
19^th year	You open a savings bank account at Rs.300 and continue investing Rs.283 per month for a period of 2 years.	-
20^th year	-	You get Rs. 7,400 at the end of 2 years from savings bank account.

In this way, your total investment is Rs. 283* 12* 20= Rs.67,920 + Rs.70 (you spent this additional amount for opening of savings bank account for 5 times in this period) amounting to Rs.67,990. And your total return is Rs. 1,00,980. Therefore, the gain is Rs.32,990. This is important to note, we have never allowed Rs.283 per month resource in this investment combination to sit idle and we rolled the amount continuously for 20 years with best possible resources aiming at a lump-sum at regular intervals.

Add this Rs.32,990 with the gain from the policy of Rs.1,00,000 and you get a Net Gain of Rs.1,52,910. This amount is still Rs.19.090 less than the gain from Rs.1,50,000 Money back plan.

Let us take a final look at why you must prefer a Money back plan of Rs.1,50,000 over a plan of Rs.1,00,000.

Your Investment	Your Return	You Net Gain
1. Buying a Money back plan of Rs.1,50,000 for 20 years with a premium of Rs.825 per month.	Rs. 3,70,000 including the bonus amount and loyalty addition.	Rs.1,72,000 and highest level of tax benefits compared to other options
2. Buying a Money back plan of Rs.1,00,000 for 20 years with a premium of Rs.542 per month. Supportive Investment You continue investment in the PO Recurring Deposit with Rs.283 every month for 5 years for total of 4 times in 20 years.	Rs. 2,50,000 including the bonus amount and loyalty addition. Rs.88,400 in 20 years.	Rs.1,19,920 + Rs.20,480 = Rs.1,40,400.
3. Buying a Money back plan of Rs.1,00,000 for 20 years with a premium of Rs.542 per month. Supportive Investment You open a savings bank account with Rs.300 in first investment year and continue investing Rs.283 per month for a period of 3 years. You get Rs.11,175 at the end of 3 years and open a FD with this Rs.11,175 for a period of 5 years. You repeat this set of activities for total of 4 times in 20 years. Also, you exercise the investment option in PO Recurring Deposit with Rs.283 every month for 5 years.	Rs. 2,50,000 including the bonus amount and loyalty addition. Rs. 1,00,980 in 20 years.	Rs.1,19,920 + Rs.32,990 = Rs.1,52, 910.

Hence, what you wanted to save at the beginning of your 20 year policy term, is not really worth enough in the long run. Many people avoid buying Rs.1,50,000 Money Back plan and prefer Rs.1,00,000 plan to save a small additional premium amount every month but fail to realize, the translation of this small amount to a good investment is troublesome and not worth enough.

We suggest you to think twice before you go for a Rs.1,00,000 Money back plan just to save a mere amount of Rs.250-300 per month. We have restricted our discussion only in two types of plan because, Rs,1,00,000 Money back plan is the most popular one in its category and there is a big number of slips from Rs.1,50,000 plan to Rs.1,00,000 plan among investors, just to save the incremental increase in premium rate per month.

After 5 years	Rs.30,000
After 10 years	Rs.30,000
After 15 years	Rs.30,000
After 20 years	Rs.2,80,000
TOTAL RETURN	Rs.3,70,000

After 5 years	Rs.42,100 (Rs.20,000 from LIC+ Rs.22,100 from PO scheme.
After 10 years	Rs.42,100
After 15 years	Rs.42,100
After 20 years	Rs.2,12,100 (Rs.1,90,000 from LIC+ Rs.22,100 from PO scheme .
TOTAL RETURN	Rs. 3,38, 400