Savings plans are life insurance policies that give the individual a different way to save and build a reserve for the future.
These investment strategies assist individuals in investing in a systematic and disciplined manner in order to meet their long- and short-term financial goals. The savings plan has a number of features that assist in meeting a person’s personal financial needs by allowing them to invest according to their own suitability and risk appetite.
The Indian government, as well as public sector banks and financial institutions, establish savings programs. The primary benefit of savings plans is that they are supported by the government, ensuring complete protection and safety for the invested funds. Furthermore, they are low-risk financial assets that provide good returns at the same time.
Some noteworthy points:
- The savings plan also provides insurance coverage in addition to the advantages of wealth creation. A death benefit is given to the beneficiary of the policy under the savings plan if the insured passes away within the policy’s term.
- At maturity, traditional insurance policy plans provide the sum assured as well as a guaranteed or vested bonus. Due to the modest exposure to high-risk equities in these programs, the risk of a negative outcome is likewise low. These strategies are suited for tax planning purposes. Traditional plans, unlike ULIPs, do not usually allow for premature withdrawal.
Types of Savings Plans
- Traditional or Whole Life Insurance Plan: This is a type of insurance that has been around for a long time. Traditional insurance plans are a type of life insurance that offers a variety of benefits, including risk protection, a fixed income return, safety, and tax advantages. They cater to people who have a low risk appetite.
- Endowment Insurance Plan: The insured receives a lump-sum payment as well as bonuses upon policy maturity or death. Death/maturity benefit: These plans pay the sum insured plus the bonus to the nominee or beneficiary in the event of the insured’s death. The bonus is only given for the number of years the insured lived throughout the policy’s active period. If the insured lives to the end of the term, he or she will get the maturity funds as well as a guaranteed bonus or profit.
- Money back Insurance Plan: These policies provide life insurance for the duration of the policy’s term, with maturity benefits paid in instalments. The key difference with a death/maturity benefit is that the payout is staggered and distributed at predetermined, regular periods. If the insured lives to maturity, a bonus is awarded. It is utilized to accomplish objectives such as a child’s education or marriage.
Best suited for:
- These schemes encourage policyholders to save money. Few policyholders miss the premium because they are afraid of losing money owing to lapsation. So only choose these if you lack investment discipline, as they will act as a goal-setting instrument in that case.
- Traditional plans, on the other hand, should be avoided because they provide little coverage and low returns. Even if your goal is to save money for taxes, you should consider better solutions and investments that are similarly low-risk and low-return, such as small savings programs.