When it comes to financial planning, most people are on the lookout for options that can offer returns, security, and tax savings, all in one. A money back policy fits this bill well. It not only provides life insurance cover and periodic payouts but also comes with attractive tax benefits that can help reduce your overall tax burden.
In this blog, we’ll explore the key tax advantages of a money back policy and how it compares with other popular tax saving schemes in India.
What Is a Money Back Policy?
A money back policy is a type of life insurance plan that provides:
- Periodic payouts (called survival benefits) during the policy term
- A maturity benefit at the end of the term
- A death benefit to the nominee if the policyholder passes away during the policy term
The unique feature of this policy is that it gives you returns at regular intervals, rather than just a lump sum at the end. And while it’s designed primarily for protection and planned savings, it also offers valuable tax benefits.
Tax Benefits of a Money Back Policy
1. Tax Deduction Under Section 80C
The premium you pay for a money back policy is eligible for deduction under Section 80C of the Income Tax Act.
- You can claim up to ₹1.5 lakh per financial year for premiums paid
- This deduction is available for policies taken for yourself, your spouse, or your children
- The deduction is available whether you’re a salaried or self-employed individual
Important Condition:
To qualify for 80C benefits, the premium should not exceed 10% of the sum assured (for policies issued after 1 April 2012). If it exceeds, the deduction will be restricted proportionately.
2. Tax-Free Payouts Under Section 10(10D)
This is the biggest advantage of a money back policy. All payouts, whether survival benefits, maturity proceeds, or the death benefit, are exempt from income tax under Section 10(10D), provided certain conditions are met.
Conditions to qualify for tax exemption:
- The premium should not exceed 10% of the sum assured
- The policy should not be surrendered before 2 years (for single premium) or before paying premiums for at least 2 years (for regular premium plans)
- The policy must not be a Keyman insurance policy
This means you can enjoy tax-free survival payouts every few years, a tax-free lump sum at maturity, and in case of death, the entire payout to the nominee is also tax-free.
3. Tax Benefits on Riders (If Added)
Many money back policies allow optional riders such as:
- Critical illness cover
- Accidental death benefit
- Waiver of premium rider
Premiums paid for these riders may also qualify for tax deductions under Section 80C, and in some cases (like health-related riders), under Section 80D.
Money Back Policy vs Other Tax Saving Schemes
Let’s compare the tax benefits of a money back policy with other commonly used tax saving schemes:
| Investment Option | Section 80C Benefit | Maturity Amount Taxation | Life Cover |
| Money Back Policy | Yes (up to ₹1.5 lakh) | Tax-free under 10(10D)* | Yes |
| PPF | Yes | Tax-free | No |
| ELSS | Yes | LTCG tax at 10% over ₹1L | No |
| 5-Year Tax Saver FD | Yes | Fully taxable | No |
| ULIP | Yes | Tax-free under 10(10D)* | Yes |
| NPS | Yes (including 80CCD(1B)) | Partial tax on withdrawal | No (optional) |
*Subject to compliance with specified conditions
As you can see, the money back policy stands out for offering tax-free periodic and final payouts, along with life cover, making it both a protection and tax planning tool.
Things to Keep in Mind
- Ensure the premium-to-sum-assured ratio remains within 10% to enjoy full tax benefits
- Keep all policy documents and payment receipts ready at the time of tax filing
- If you surrender the policy early (before 2 years), tax benefits claimed may be reversed
- Use survival payouts wisely, reinvesting them in other tax-saving instruments like PPF, ELSS, or NPS can compound your tax benefits further
Is a Money Back Policy a Good Tax-Saving Tool?
Yes, especially if you are:
- A conservative investor looking for safe, tax-free returns
- Someone who prefers scheduled payouts for upcoming life goals
- Planning for children’s education, marriage, or retirement milestones
- Looking for life insurance + savings + tax benefits in one product
While the returns may not be as high as market-linked instruments, the predictability, tax efficiency, and dual-purpose structure make money back policies a good option for long-term, tax-smart planning.
Final Thoughts
A money back policy does more than just return your money, it gives you financial protection, regular income, and tax relief, all rolled into one. For individuals looking to balance savings with security, and tax benefits with discipline, this policy type offers a practical, well-rounded solution.
When used correctly and in line with your financial goals, it can be an effective part of your larger tax-saving strategy, especially when paired with other plans like PPF, NPS, or ELSS.