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.
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Features of a Savings Plan
Provided are the features of a savings plan:
- Flexibility in Premium Payments
A good savings plan offers flexibility in making payments towards the premium amount, i.e. making monthly, quarterly, & annual premium payments.
- Multiple Investment Options
It allows you to choose between guaranteed returns for stability or market-linked returns for growth.
- Guaranteed Returns or Bonuses
Some of the plans offer assured returns & additional bonuses, adding to the corpus, offering predictable returns.
- Tax Benefits
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.
- Coverage & Riders
It allows adding some riders to enhance the basic features of the plan at an added cost.
- Policy Term & Maturity Benefits
Choose a policy tenure that well aligns with the financial objectives.
Benefits of a Savings Plan
Provided are the benefits of a savings plan:
- Cash Value Accumulation
Under a savings plan, the premium amount gets accumulated into a substantial corpus till maturity or retirement.
- Death Benefits
The death benefit received upon the uncertain demise of the policyholder offers financial support to the family member, hence offering mental peace.
- Bonus Declarations
Some of the savings plans offer a bonus every year, providing value addition to maturity proceeds.
- Surrender Value
Some savings plans also allow you to surrender the plan in case of any emergency & withdraw the funds accumulated.
- Grace Period
Some of the plans also provide a grace period, i.e. time to make premium payments without any loss of benefits.
- Flexible & Customisable Options
It offers flexibility in terms of coverage amount, riders, premium payment frequency, payouts, etc.
- Financial Protection & Regular Payouts
It offers either a regular flow of income or a lump sum at the time of maturity, hence providing stability.
- Helps Achieve Long-Term Goals
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.
- Tax Savings & Deductions
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:
- Risk Assessment & Tolerance
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.
- Financial Objectives
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.
- Investment Duration
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.
- Long-Term Goals
Choose a plan that well aligns with your future milestones.
- Key Plan Features
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.
- Flexibility of the Plan
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.
- Overall Cost & Value
Calculate the costs involved, maturity or death benefits, liquidity, features, & risks involved, while choosing a plan.
Flexibility in Savings Plan
- Flexible Contribution Amounts
Some of the plans allow you to choose the premium amount depending on your income, in case of a change in income periodically.
- Variety of Investment Choices
In case your investment comprises debt funds, equity funds, or balanced funds, then the allocation of investment depends on risk tolerance level & financial objectives.
- Cash Availability & Withdrawal Options
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.
