The LIC New Money Back Plan 721 is a popular life insurance product offered by the Life Insurance Corporation of India (LIC). Designed to provide a combination of financial protection and investment benefits, the plan is a with-profits, non-linked, traditional endowment policy. As the name suggests, the plan features a money-back option, which means that policyholders receive a part of their sum assured at regular intervals during the policy term. This makes it an ideal choice for individuals seeking both life insurance and liquidity over the long term.
In this detailed article, we will examine the LIC New Money Back Plan 721 in-depth, explaining its features, benefits, eligibility criteria, working mechanism, and an illustrative example to help you understand how the plan works.
1. Introduction to LIC New Money Back Plan 721
The LIC New Money Back Plan 721 is a traditional life insurance policy that combines the advantages of both life cover and investment returns. It is designed to cater to the needs of individuals who seek both financial protection for their families in case of their untimely death and periodic payouts during the policy term to meet specific financial goals.
The plan provides money-back benefits at regular intervals during the policy term. The key features include death benefits, survival benefits (money-back), and a maturity benefit at the end of the policy term. Additionally, as a participating policy, the LIC New Money Back Plan 721 also offers the potential to earn bonuses, further enhancing the overall returns on the policy.
The New Money Back Plan 721 is especially suitable for individuals who need life insurance coverage with periodic payouts, like for funding a child’s education, marriage, or other long-term financial goals.
2. Key Features of LIC New Money Back Plan 721
To better understand how the plan works, let’s break down its most significant features.
a. Policy Term
The policyholder can choose a policy term of 20 years or 25 years, depending on their requirements and financial goals. The policy term determines the frequency of the money-back benefits and the timing of the maturity benefit.
- Policy Term Options: 20 years and 25 years
- Risk Coverage: Throughout the policy term, the plan offers life insurance protection, ensuring that the policyholder’s family is financially secure in case of an untimely death.
b. Money Back Benefit (Survival Benefit)
One of the most important features of this policy is the money-back benefit. This means that a portion of the sum assured is paid back to the policyholder during the policy term. This benefit can be used for various financial needs, such as medical expenses, education costs, or purchasing assets.
The money-back benefits are paid out in the following manner:
- 30% of the Sum Assured at the end of the 5th year.
- 30% of the Sum Assured at the end of the 10th year.
- 40% of the Sum Assured at the end of the 15th year (for a 20-year policy term).
For a policy with a 25-year term, the payout at the end of the 20th year is replaced with a larger payout at the end of the 25th year. These payments serve as the survival benefits, helping the policyholder manage their finances during the policy term.
c. Death Benefit
The death benefit is the amount paid to the nominee in case of the policyholder’s untimely death during the policy term. The death benefit comprises:
- Sum Assured on Death, which is typically the sum assured (basic sum assured) under the policy or 10 times the annual premium, whichever is higher.
- Bonuses, if any, that may have been declared by LIC during the policy term.
The sum assured on death is paid in full, regardless of whether the money-back benefits have been received by the policyholder during their lifetime. If the policyholder dies after receiving any money-back payouts, the nominee still receives the full death benefit amount.
d. Bonus Facility
As a participating policy, the LIC New Money Back Plan 721 is eligible for the declaration of bonuses. The policy can earn:
- Reversionary Bonuses: These are declared annually by LIC, and they add to the sum assured.
- Final Additional Bonus (FAB): This is a lump sum bonus that may be paid when the policy matures or in the event of a claim.
It is important to note that bonuses are not guaranteed, and their declaration depends on LIC’s financial performance. However, the possibility of bonuses adds value to the overall returns of the plan.
e. Maturity Benefit
At the end of the policy term, the policyholder receives the maturity benefit, which consists of the sum assured on maturity and any bonuses declared during the policy term.
- Sum Assured on Maturity is the total sum assured, which the policyholder chose when purchasing the policy.
- Any reversionary bonuses accumulated during the policy term are added to the sum assured.
- The Final Additional Bonus (FAB), if applicable, is added to the maturity benefit.
For example, if the sum assured is ₹5,00,000 and the policy has earned ₹50,000 in bonuses, the total maturity benefit would be ₹5,50,000.
f. Loan Facility
Policyholders can avail themselves of a loan against the LIC New Money Back Plan 721. Typically, loans can be up to 90% of the surrender value of the policy. This option provides liquidity in case of an emergency, without having to surrender the policy.
g. Tax Benefits
The LIC New Money Back Plan 721 offers several tax advantages:
- Section 80C: The premiums paid toward the policy qualify for tax deductions under Section 80C of the Income Tax Act, subject to the limit of ₹1.5 lakh.
- Section 10(10D): The death benefit and the maturity benefit are tax-free under Section 10(10D), subject to certain conditions.
These tax benefits make the policy even more attractive for individuals looking to save taxes while building wealth.
3. Eligibility Criteria for LIC New Money Back Plan 721
To purchase the LIC New Money Back Plan 721, the following eligibility conditions must be met:
- Minimum Age: 13 years (completed)
- Maximum Age: 50 years (for a 25-year policy term), or 55 years (for a 20-year policy term)
- Minimum Sum Assured: ₹1,00,000
- Maximum Sum Assured: No limit (subject to underwriting guidelines)
- Premium Payment Mode: The premium can be paid annually, half-yearly, quarterly, or through a lump sum (in case of single premium).
The policy is designed to be flexible, allowing the policyholder to choose the premium payment mode that suits their financial situation.
4. Benefits of LIC New Money Back Plan 721
The LIC New Money Back Plan 721 offers several benefits to policyholders:
a. Financial Protection for the Family
The policy provides life insurance coverage throughout the policy term, ensuring financial security for the policyholder’s family in case of untimely death. The death benefit, along with any bonuses, helps support the family’s financial needs after the policyholder’s demise.
b. Liquidity through Money-Back Benefits
The money-back feature provides liquidity at critical junctures in the policy term. These periodic payouts help the policyholder meet significant financial obligations, such as children’s education, wedding expenses, or home loan repayment. The plan is structured to provide money-back benefits at intervals of 5, 10, and 15 years, allowing the policyholder to access funds at crucial stages of life.
c. Maturity Benefit with Bonus
The policy offers both a sum assured on maturity and the possibility of bonuses, making it an attractive investment option. The bonuses can significantly enhance the total maturity benefit, increasing the returns from the plan.
d. Loan Facility
The availability of a loan against the policy ensures that policyholders can access funds in case of emergencies without having to surrender the policy or lose out on the coverage.
e. Tax Savings
The policy offers multiple tax-saving benefits, including deductions on premiums under Section 80C and the exemption of death and maturity benefits under Section 10(10D). This can be particularly advantageous for individuals seeking tax-efficient investment options.
5. How Does LIC New Money Back Plan 721 Work?
Let’s take an example to illustrate how the LIC New Money Back Plan 721 functions.
Example:
Let’s assume that Mr. Anand, aged 30 years, purchases the LIC New Money Back Plan 721 with a policy term of 20 years and a sum assured of ₹10,00,000.
- Policy Term: 20 years
- Sum Assured: ₹10,00,000
- Annual Premium: ₹50,000 (approximately)
- Premium Mode: Annually
Breakdown of Benefits:
- At the End of Year 5: Mr. Anand will receive 30% of the sum assured, which is ₹3,00,000.
- At the End of Year 10: He will receive another 30% of the sum assured, which is ₹3,00,000.
- At the End of Year 15: Mr. Anand will receive the final 40% of the sum assured, which is ₹4,00,000.
- At the End of Year 20: The policy will mature, and Mr. Anand will receive the full sum assured of ₹10,00,000 plus any bonuses. Let’s assume the total bonuses declared by LIC over the 20 years amount to ₹2,00,000. Therefore, his maturity benefit will be ₹12,00,000.
Death Scenario:
If Mr. Anand were to pass away in the 10th year of the policy, his family would receive the death benefit, which is higher than the sum assured. If the sum assured is ₹10,00,000, and the death benefit is determined by the higher of 10 times the annual premium or the sum assured, his family would receive ₹10,00,000 plus any accrued bonuses.
