What is a Savings Plan?
A savings insurance plan has an insurance component as well as a savings component. Under a savings plan, you get the dual benefit of both options. There is a cover involved based on the type of insurance contract, which comes with its own sum assured and maturity and other benefits. There is also a savings component which helps you with tax benefits and gives other attractive offers as well. Savings plans are therefore one of the best ways to invest your money. They protect you against future risk while making sure your money is working for you.
What are the different types of Savings Plans?
Within Insurance plans, there are many different types of plans that have a savings component as well as an Insurance component.
A. Life Insurance Plans:
Life insurance is the preferred way to invest and save simultaneously. The risk involved in most of the traditional life insurance policies is low and the premiums are not that high. The policies are guaranteed by the government and there is a lot of trust with these policies. There are tax break associated with all life insurance plans. Further, you can even get a loan against a policy for your needs. There are three main types of life insurance plans.
1. Money back Plans:
These are plans where the policy will return a fixed amount to the policyholder at regular time intervals. These policies are perfect investment opportunities as the money back scheme means you will regularly get cash infusions deducted from the sum assured. You can use the money to invest in large assets, such as a car, home or any other investment. If the insured survives the policy, the balance sum assured is returned. If the policyholder expires during the term of the plan, the full assured sum is given to the beneficiaries, notwithstanding the payouts made against the sum in the past. These benefits make it an attractive policy to invest in, though the premiums are generally higher as compared to other plans.
2. Unit Linked Investment Plans:
Even though Unit Linked Investment plans have a chequered history of bad returns and lost investments, the new guidelines since 2010 have made them safer and a more attractive investment arena. In ULIP’s, a part of the premium paid by the insured goes to the life cover provided under the policy. The remaining amount is invested in stocks or bonds at the direction of the insured and provide market linked returns. In these plans, the policyholder can trade equity for debt and decide how much risk he wants to take on. The flexibility that a ULIP policy allows makes it a good savings option.
3. Endowment Plans:
These are the traditional insurance plans which offer a guaranteed life cover for very low risk and smaller premiums. These plans offer a safe investment option for those who are simply looking for a small, but guaranteed return on their savings and do not wish to take on large risk. Endowment plans have a guaranteed maturity amount along with some bonuses. You can have plans which participate in the profits of the insurer and those which do not. The difference would be in the premiums that the insured would pay.
4. Term Plans:
Term Plans are a relatively inexpensive way of investing a sum in an insurance policy. The term plan promises an assured life cover, has long terms of contract, and has low premiums. The premiums paid towards the coverage amount is deductible against tax under section 80C of the IT code. There are Term Return of Premium plans as well, which ensure that you get your premium amount back if you survive the maturity period of the policy.
B. Retirement Plans:
Pension or retirement plans are differently oriented from other insurance plans. Regular insurance plans are termed as protection plans, whose objective is to provide for the people who survive the insured in the event of death. In retirement plans, the objective is to provide for the insured and his dependents in the years of life post retirement. The idea is to provide financial stability in the form of regular payouts and independence in old age. There are a number of tax benefits in pension plans under subsection 80CCC of section 80C. A big chunk of the maturity amount is not taxed while the remaining amount is only subjected to minimal amounts of tax. The National Pension Scheme is also an attractive investment option.
C. Health Insurance Plans:
Mediclaim policies offer a wide variety of health insurance cover for all types of medical expenses and treatment costs. For various health insurance policies offered by various insurers, the premiums offer tax breaks up to Rs. 15,000 under section 80D of the IT code. The exemption amount is 20,000 for senior citizens.
Things to consider when buying a Savings Plan?
There are several factors to keep in mind while opting for any kind of Insurance Savings plan.
1. Risk Appetite:
There are a wide variety of scheme options available for savings cum insurance. You should look at what kind of risk you’re willing to take on which will determine the policy you take. For instance, if you’re willing to take a large risk, you can go for ULIP’s or profit linked endowment plans whose returns depend on market volatility. If your risk appetite is low, invest in basic endowment plans or term plans.
2. Expenses and Savings:
For any type of policy you choose, always consider the expenses you’ll have towards paying the policy premiums and the savings benefits the policy offers. Do remember to account for inflation in long term policies. Maturity amounts or money back amounts will not have the same value in 5 years time that they do now. Also consider the tax benefits that the policy offers.
3. Insurance cover:
Apart from the savings components, all the policies listed above have a major insurance component as well. Look into the kind of insurance cover that the policy offers, the benefits and bonuses that are covered under the policy. Select the policy which has the right balance of insurance and savings as per your needs. Your needs are also defined in part by the number of dependants you need to take care of.
For a genuine and transparent advice on your Savings Plan, call our advisors on 9948 661 204 and get a Free Consultation for the first time. Alternatively, submit our enquiry form and one of our Financial Advisors will get back to you at your convenience.
Our lines are open – Monday to Saturday: 8.30am – 7pm.