5 Tips to Choose an Insurance cum Savings Plan

What is an insurance cum savings plan?

An insurance cum savings plan is an insurance product that combines life insurance protection with a savings component. It allows policyholders to secure life cover while building a financial corpus for long-term goals such as education, retirement, or asset creation.

Under this plan, part of the premium provides life cover, and the remaining amount is dedicated towards generating returns.

Insurance cum savings plans are available in two primary forms: participating* and non-participating. Participating plans share bonuses (if declared) by the insurer. Non-participating plans, on the other hand, have fixed, guaranteed benefits** that are not linked to market performance. Some insurers   offer life insurance cum market-linked plan options, known as Unit Linked Insurance Plans (ULIPs), in which returns depend on the performance of selected market linked funds.

From a tax perspective, premiums paid towards an insurance cum savings plan qualify for deductions of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961. This deduction is available only under the old tax regime. Under Section 10(10D), the proceeds received on maturity are exempt from income tax if the total premium annually does not exceed ten percent of the sum assured for plans issued on or after April 01, 2012 and the annual aggregate premium is within the threshold specified under section 10(10D) for ULIP policies issued on or after 1 Feb.’21 and traditional policies issued on or after 1 Apr’23. The death benefit received by the nominee is fully exempt from tax, regardless of the policy issue date or premium amount.

 

5 Tips for Selecting the Right Savings Plan

Now that you know all about savings plans, let’s take a quick look at a few tips that you can use when choosing one.

 

1. Determine your investment objective

Before you choose a savings plan, always ensure that you set an investment objective. This will allow you to select the plan that’s capable of satisfying your objective. For instance, if your objective is to plan for your retirement, you could choose a non-participating savings plan that offers guaranteed returns.

 

2. Ensure that the policy term is in line with your objective

Once you’ve set your investment objective, the next step is to make sure that you select a policy term that’s in line with it. Only then will you be able to make use of the maturity benefits that the plan generates to satisfy your life goals. For instance, if your ultimate end goal is to provide for your child’s higher education, you would need to choose a policy term that coincides with it.

 

3. Take your needs and requirements into account

Some savings plans offer a lump sum payout upon maturity, whereas others offer you the ability to enjoy a stream of regular and steady income after a certain period of time. Also, they are tax-saving instruments as well. Therefore, only by taking your needs and requirements into account will you be able to choose the suitable plan for yourself.

 

4. Consider your risk appetite

As you’ve already seen above, a savings plan  can be either participating or non-participating. Therefore, to choose the one that suits you, you would need to consider your risk appetite. For instance, if you’re a conservative investor, you could look into non-participating savings plans since they offer you guaranteed income.

 

5. Choose adequate life cover

Although a savings plan gives you an online investment opportunity, it is primarily an insurance product. And so, when selecting a savings plan, ensure that you choose a life cover that’s adequate to satisfy your family’s life goals.

 

Key Takeaways

• An insurance cum savings plan helps you achieve two goals: life protection and long-term wealth creation through disciplined savings.
• These plans work best when tied to a clear goal, such as retirement, education funding, or income replacement, rather than as a short-term investment.
• Comparing the total cost (premium, lock-in, and surrender charges) to expected returns helps assess the real value before committing for the long term. 

 

Conclusion

An insurance cum savings plan offers both life coverage and disciplined wealth creation. When selecting one, assess your financial goals, policy duration, and payout type, and match them with your risk tolerance. The right plan can help you secure family protection, consistent returns, and tax benefits under Section 80C (if you opt for the old tax regime). Furthermore, the death benefits or sum assured is tax-exempt under Section 10(10D) of the Income Tax Act.  

 

FAQs

How does an insurance cum savings plan work?

An insurance cum savings plan combines life cover and an investment component. A portion of your premium funds is allocated to life coverage, and the remainder is invested to provide maturity benefits , in ULIPS  the premium is invested in market linked investments . The nominee may receive the death benefit. 

 

Can I withdraw money from my insurance cum savings plan before maturity?

You may be able to surrender your insurance-cum-savings plan before maturity, subject to policy terms. ULIPs can be surrendered after the mandatory five-year lock-in, after which the fund value becomes payable as per applicable rules. Traditional endowment or money-back plans may also be surrendered or made paid-up once the prescribed surrender value conditions are met.

 

How are insurance cum savings plans taxed?

Premiums are deductible up to ₹1.5 lakh in the old tax regime. Maturity proceeds are tax-exempt if the annual premium is less than ten percent of the sum assured (for plans issued after April 01, 2012) and the annual aggregate premium is within the threshold specified under section 10(10D) for ULIP policies issued on or after 1 Feb.’21 and traditional policies issued on or after 1 Apr’23. The death benefit is tax-exempt.