Friday, 14 October 2022

Seven Benefits of Investing in Life Insurance Savings Plans

India has been traditionally a country of savers. We have managed to spend less than our income and save the maximum possible amount out of regular income for securing our future. Sometimes, this has also meant postponement of current consumption for a better future. However, saving money is never as simple as just cutting back on expenses. Investing these savings wisely to deal with unexpected financial emergencies and to fulfil goals, such as buying a house, having a comfortable retirement, providing for yourself and your family, and more is extremely essential.

A savings plan can help you do this and can offer you guaranteed financial protection along with a life cover and help you live a stress-free and wholesome life.

What is a Saving Plan?

Savings plans are life insurance plans that offer individuals an opportunity to save, invest, and accumulate funds for their future. These saving plans help individuals inculcate a disciplined and regular saving habit as well as invest systematically and earn significant returns.

As a traditional life insurance offering, a savings policy also provides life cover, and riders can be added to reap myriad of benefits. When choosing between types of savings plans, make sure you select one with competitive features, and optional riders such as death benefit, critical illness rider, and liability cover.

Read on to find out more about a life insurance savings plan and how it can add value to your life.

How Much Should I Keep in Savings?

There is no right or wrong amount for savings. Ideally, it is recommended to save 20% to 30% of your income for a future contingency. This can help you steadily save for your needs without creating a financial burden. It can help prepare for medical expenses, financial goals, long-term security and more.

Importance of investing in a savings plan

An insurance product that can act/double up as an investment plan can offer several benefits. Some of these have been discussed below:

Financial stability:

Life can be uncertain at times. Situations may arise when one may lose their job, someone in the family suffers from a medical ailment, injury, etc, which results in a sabbatical from work or a decrease in income. Such situations don’t take away the fact that you will still have to support your family. Besides recurring costs such as food, clothing, fuel, education of children, other household expenses, adverse situations may call for increased expenses. Saving investment plans can help in such conditions by providing you with financial stability in life. These plans offer guaranteed income, so you are never without a safety net, and you can feel secure in diverse situations.

Life protection:

A life insurance savings plan has two components. The first is the savings component that lets you plan for different financial goals as well as emergencies, and the second is the life cover that protects your loved ones.

Any loss of life has its effect on a family. When a family loses an earning member, other family members can be left without financial cover. The loss of income can disrupt the lives of parents, siblings, spouse, children, or anyone dependent on the earning member for money. If you have loans, the responsibility to deal with creditors and repay your debt will also fall on your next of kin.

This is where a life insurance savings plan can help. The proceeds from a savings policy can help your loved ones substitute your income and, at the same time, pay your debts, if any and can help you carry on with the same standard of living as before. What's more, some plans come with a Waiver of Premium clause that waives premium payments under certain conditions, that ensures the continuity of the insurance cover even in adverse situations.

Tax benefits:

A life insurance savings plan has many tax benefits too. The premium paid towards a savings plan can be used as a tax deduction of up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. This helps you lower your taxable income and save money for several years, depending on the term of your policy. The insurance benefit paid to the plan’s nominee in the unfortunate event of death is also exempt from income or capital gains tax subject to the rules under Section 10(10D) of the same act.

Peace of mind:

Above everything else, a saving investment plan can provide you with peace of mind, knowing you have a corpus to rely on in your hour of need. This removes the pressure of financial instability. Moreover, savings plans offer a systematic way to save for the future. Therefore, you are not burdened with saving lump sum money during the later stages of your life, like retirement. If you start saving early in life, you can slowly but steadily save small amounts over time and enjoy financial liquidity throughout life.

Diversifies your investment portfolio:

A good investment portfolio is made up of several investments that can range from equity, debt, and cash to real estate, commodities. Every asset class has a unique risk factor. Equities can be high risk, but they are known to deliver high returns. On the other hand, debt can carry low risk but tend to deliver low returns. Saving plans bring stability, tax benefits and wealth creation to your portfolio. These plans offer a guaranteed income option, guaranteed fixed returns in a reducing interest rate scenario and tax benefits on both premium payment as well as maturity proceeds.

Flexible options:

A savings policy can offer many flexible options in terms of premium payment terms, payout modes, policy terms, etc. You can receive regular income or lump sum income, pay the premium over the term or in a single payment, or select a long or short policy term. The plan can be personalised to suit your needs, income, and limitations. This makes these plans ideal for all age groups, genders, income groups, and professions.

Policy Loan Option:

Once a savings policy reaches its surrender value, you can take a loan against it. As compared to other loans, policy loans offer better interest rates. If you need money in an emergency, a policy loan option can help you make the necessary arrangements.

Closing note

A savings plan is a must-have in today’s times. Given the uncertainty of employment post the pandemic and the triviality of life, as seen in the case of wars and political turmoil across the globe, having a guaranteed source of money is critical. Savings plans can offer you peace of mind and a dependable financial backup. Moreover, the life cover component also protects your loved ones in your absence. Therefore, investing in a savings policy as soon as you can is highly recommended.

Frequently Asked Questions (FAQs)

Are savings plans low risk?

This depends on the type of plan chosen. Savings plans can either be linked to the market or not. Non-Participating savings plans are low risk and offer guaranteed returns. ULIP savings plans on the other hand invest in the market and can tend to have higher risk but offer potentially better returns.

Who can invest in a savings plan?

A savings plan is ideal for anyone and everyone. The following categories of people can benefit from these plans:

Married couples
Parents who wish to provide for their children
Single individuals
Children who wish to provide for their parents

How to pick the best savings plan?

The best savings plan can be chosen by comparing different policies in the market. Here are some parameters to consider:

The plan’s features
The premium and other costs of investing in the plan
The policy term
The options for customisation

When is the right time to invest in a saving investment plan?

While there is no fixed time to invest in a saving investment plan, the sooner you do it, the more you can benefit from it. A life insurance savings plan can be most cost-effective when you are young. These plans offer a life cover, which is why the insurer is likely to analyse your health and age before offering you a plan. The older you are, the more likely you are to raise a claim. Therefore, buying it young can help you get a low premium and save money.

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