A savings plan is a type of life insurance plan under which an investor can save & accumulate funds to meet their future financial obligations. These plans instil a habit of disciplined savings & allow one to earn substantial earnings. A Savings Plan offers financial security to the family members, providing mental peace & a better quality of life.
Features of a Savings Plan
Provided are the features of a savings plan:
A good savings plan offers flexibility in making payments towards the premium amount, i.e. making monthly, quarterly, & annual premium payments.
It allows you to choose between guaranteed returns for stability or market-linked returns for growth.
Some of the plans offer assured returns & additional bonuses, adding to the corpus, offering predictable returns.
The premium paid towards the plan is eligible for a tax deduction u/s 80C. Additionally, the death benefits or maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
It allows adding some riders to enhance the basic features of the plan at an added cost.
Choose a policy tenure that well aligns with the financial objectives.
Benefits of a Savings Plan
Provided are the benefits of a savings plan:
Under a savings plan, the premium amount gets accumulated into a substantial corpus till maturity or retirement.
The death benefit received upon the uncertain demise of the policyholder offers financial support to the family member, hence offering mental peace.
Some of the savings plans offer a bonus every year, providing value addition to maturity proceeds.
Some savings plans also allow you to surrender the plan in case of any emergency & withdraw the funds accumulated.
Some of the plans also provide a grace period, i.e. time to make premium payments without any loss of benefits.
It offers flexibility in terms of coverage amount, riders, premium payment frequency, payouts, etc.
It offers either a regular flow of income or a lump sum at the time of maturity, hence providing stability.
This plan helps you accumulate funds to meet future financial obligations, such as a child’s higher education, marriage, buying a house, retirement planning, etc.
The premium paid towards the plan is eligible for a tax deduction u/s 80C. Additionally, the death benefits or maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
Steps to Choose the Right Savings Plans
Provided are the steps to be followed while choosing an appropriate savings plan:
Step 1: Identify the financial objectives
Identify the financial objectives in terms of the child’s education, marriage, buying a house property, retirement planning, etc.
Step 2: Assess the risk profile & capacity
If you are looking for low risk, opt for a traditional savings plan, & if you are comfortable with moderate risk, opt for market-linked returns.
Step 3: Decide the Investment tenure
Choose a policy tenure that well aligns with your investment horizon.
Step 4: Check for Flexibility & Liquidity Options
Check for the flexibility offered in terms of surrendering the plan, partial withdrawals, etc.
Step 5: Compare Costs & Policy Charges
Compare the associated costs involved & review the benefits to choose the most appropriate plan.
Step 6: Ensure the Company’s Reputation & Claim Record
Choose an insurance company with a high claim settlement ratio along with great customer satisfaction, ensuring smooth payouts.
Factors to Remember Before Selecting a Savings Plan
Provided are the factors to be considered while selecting a savings plan:
Assess the risk tolerance level, i.e. opt for plans with fixed returns if you want low risk, & opt for market-linked investments if you are willing to accept risks.
One should opt for the plan considering their financial objectives, such as wealth accumulation, children’s education, marriage, loan repayment, building a Retirement plan, income protection, etc.
Consider the time when the end usage of funds is desired, i.e. whether the amount can be saved for a longer or shorter time span.
Choose a plan that well aligns with your future milestones.
Look out for the relevant attributes of the plan in terms of life coverage offered, riders, flexibility, growth in savings, tax benefits, surrender value maturity benefits, etc.
Consider the flexibility factor in terms of amount, frequency, & tenure of the plan, which means if there is any flexibility in terms of change in amount, tenure, etc.
Calculate the costs involved, maturity or death benefits, liquidity, features, & risks involved, while choosing a plan.
Flexibility in Savings Plan
Some of the plans allow you to choose the premium amount depending on your income, in case of a change in income periodically.
In case your investment comprises debt funds, equity funds, or balanced funds, then the allocation of investment depends on risk tolerance level & financial objectives.
Check for the surrender option or partial withdrawal option once the lock-in period is over, that will provide liquidity issue at the time of emergencies.
Conclusion
The appropriate time to start with a savings plan is now, i.e., the sooner, the better. The longer the tenure is, the better the returns are, & also, the sooner you plan, the lower the burden is on your pocket. One should be regular in their savings as it will help accumulate funds to fulfil the financial obligations towards their family members.
Hence, with the help of considerate planning, one can meet the financial obligations related to their family’s milestones, hence providing them with a brighter & more secure financial future.
