A friend told me that money back schemes are better than fixed deposits because they give tax free returns. Is it true?
Alok Kumar, Lucknow
Yes, the benefit of taking a money-back plan is that during the term of the policy, you, the insured will receive tax-free, fixed proportions of the sum assured at regular intervals. On maturity, you will receive the balance portion of the sum assured plus the bonus/participating profit/ guaranteed addition for the term of the policy, which is also tax-free in most cases. This plan is suitable for people who require lump sum amounts in future to meet specific expenses such as children’s education or marriage. The policy provides insurance protection for the family as well as provision for old age. On the other hand, interest on fixed deposits is fully taxable. However, money-back policies need commitment to pay for a long duration, like 15 to 25 years, and charge you for providing life insurance cover. So effectively your premium less charges are invested for returns. Also, you need to compare the returns from a fixed deposit to the returns from money back for the same time duration.
