Sumarg, aged 45 works in a private firm. In ten years from now, he plans to perform his daughter’s marriage but has no funds saved up yet for the big event. At 55, he would not be in a position to afford a personal loan for the sake of his daughter’ marriage. A personal loan at this age would be cumbersome and shall eat into his retirement saving corpus. After much thought, Sumarg decided to buy a ULIP that would fetch him better returns at the end of the 10-year policy term and meet his daughter’s marriage needs without disturbing his retirement savings.
What is a savings plan?
A savings plan is a type of life insurance investment plan that offers numerous possibilities to not only save money but also invest and multiply it in a systematic and disciplined manner. This systematic investment equips an individual to be adequately prepared to meet his family’s future financial needs and ensures the fulfilment of his financial goals. Savings investment plans offer several features that can help an individual in fulfilling his goals, and considering these features is essential before choosing the right savings plan . Here are five features of savings plans that one needs to be aware of:
- Entry Age and Tenure: Savings plans usually offer a broader entry age bracket along with a flexible policy term or investment tenure. The entry age determines the risk appetite of the policy holder and savings plans are tailored to suit the risk profile of the policy holder. Young people in 20s and 30s would be willing to take higher risks for lucrative returns and savings plans such as unit-linked insurance plans (ULIPs) are best suited for their higher risk appetite. On the other hand, saving investment plans like money back plans or the endowment plans are more suited for risk-averse investors who prefer to keep their money secure despite generation of low returns. The mid-to-long term investment tenure of the savings plan also allows for accumulation of significant corpus during the policy term.
- Life Cover and Riders: Savings plans such as ULIPs offer the dual benefit of a life insurance cover and market-linked savings returns, making them a preferred savings investment option. ULIP savings plans also provide for the addition of certain riders that can enhance the financial protection of the policy holder and his family against any accidental death, disability or a critical illness.
- Investment Options: Savings plans facilitate a variety of options in terms of investment in financial instruments ranging from equities that involve reasonably high risk to traditional and safer instruments like fixed interest securities such as government securities, corporate bonds, and money market instruments.
- Charges: Savings plans come with a bucket of extra charges and knowing about these extra costs and charges attached to certain actions is vital while selecting a savings plan. Extra expenses in the form of administration charges, fund management charges, switching charges, mortality charges, premium allocation charges, partial withdrawal charges, discontinuance charges and other miscellaneous charges. While these charges attached to the savings plan are inevitable under specific circumstances, the best savings plan would have minimum charges and provide flexibility in terms of cash withdrawal, receipt of bonus and policy term.
- Tax Benefits: Beneficial savings plans must also make for good tax saving instruments. The premium paid towards most life insurance savings plans are deductible from taxable income up to a maximum limit of Rs. 1 Lakh under section 80c of the Indian Income Tax Act, 1961. Maturity benefits and death benefits of the savings plan are also eligible for tax exemption under section 10D of the Indian Income Tax Act, 1961, making them the choicest tax saving instrument.
Choosing the right savings plan
The market is flooded with several saving investment plans, and every plan has its own risks associated with it, with varying returns and saving ad hoc savings is not enough . With a range of savings plans to choose from, it is important not to end up investing in a wrong savings plan without a thorough research about the fund and asset allocation of the plan. Researching online is one way to educate oneself about the features of a suitable savings plan. In fact, buying a suitable savings plan online is an easier and useful way to avoid paying any excessive and arbitrary charges or brokerage. Savings plans like the Future Generali Big Dreams Plan can be easily purchased online and can help fulfil an individual’s life goals by choosing from three available investment options- Wealth creation, Retire smart and Dream Protect. It offers a life cover and higher returns at lower additional charges enabling the faster growth of individual wealth. Thus, it is recommended to do some self-study on the savings plan suitable to individual needs before proceeding to buying it online.