A life insurance plan helps you protect your family financially in the event of your untimely demise. But then, did you know that there are certain life insurance plans that provide more than just a life cover? These types of insurance plans are what are commonly referred to as insurance cum savings plans. Interested to know more? Keep reading to find out everything there is to know about them.
What is a savings plan?
An insurance plan that combines a savings component aspect along with a life insurance cover is known as a savings plan. They are traditional endowment plans that are designed to allow you to save up for the future in a systematic manner.
The corpus that you accumulate through a savings plan is paid out to you on maturity. You can then use these funds to meet your life goals. A savings plan can either be a participating plan or a non-participating plan by nature.
In a participating plan, the insurance service provider may distribute bonuses (if any) at regular intervals throughout the entire tenure of the plan. These bonuses are paid out in addition to the basic sum assured. This effectively increases the total pay-out that you get to receive on maturity.
On the other hand, a non-participating plan is basically an insurance plan with guaranteed returns. Bonuses are not paid out to the holders of these plans. This means they only get to receive the sum assured.
Features of savings plans
Now that you’ve gotten an idea of what savings plans are, here’s a quick look at a few of the most important features –
1. Flexible investment options
As we’ve already seen, when opting for a savings plan, you get the flexibility to choose between a participating or a non-participating plan.
2. A savings component
In a savings plan, you get to enjoy the benefit of savings in the long run. This allows you to create wealth over the long term. You can then use this to meet your life goals.
3. Multiple riders
Considering the fact that a savings plan is also an insurance product at its core, you get the ability to choose from many different riders at nominal extra cost.
Some of the riders that you may be able to opt for include Waiver of Premium Benefit, Family Income Benefit, Accidental Death Benefit, Accidental Permanent Total/Partial Disability Benefit, and Critical Illness Benefit.
These riders can help you enhance the life insurance coverage over and beyond the basic sum assured for that respective policy.
Benefits of investing in a savings plan
Let’s now move on to the benefits that you get to enjoy by opting for a savings plan. Here’s a quick look at a few of them –
1. Savings and insurance
As you know by now, one of the primary benefits of a savings plan is that it comes with the combined aspect of both savings and insurance. This allows you to not only ensure that your family remains financially protected in the event of your demise, but also enables you to build a sufficient corpus to meet your life goals.
2. Tax benefits
Savings plans come with several tax benefits. Firstly, the premiums that you pay toward a savings plan can be utilized as deductions to the tune of Rs. 1.5 lakhs under section 80C of the Income Tax Act, 1961. This allows you to effectively reduce your income tax liability.
Secondly, the death benefit that is paid out to your family upon your demise is also completely tax-free in their hands according to section 10(10D) of the Income Tax Act, 1961. And finally, the benefit that is paid out to you upon maturity of the savings plan is completely tax-free in your hands as well. The above tax benefits are subject to the provisions stated in the Income Tax Act, 1961, as amended from time to time.
With participating savings plans, you get a chance to receive bonuses from your insurance service provider. This can help increase the final pay-out that you receive at maturity.
4. Pay-outs in instalments
With some savings plans, you can choose to receive death and maturity benefits in instalments instead of a lump sum amount.
5. Loan facility
If you’re in need of funds for an emergency, you can avail a loan by offering up your savings plan as collateral. This is another benefit that some plans offer.
Who should opt for a savings plan?
A savings plan is a beneficial option for people with low risk-taking potential, looking to create a large corpus over the long term. The guaranteed pay-outs offered by savings plans feature little to no risk and would serve as one of the preferred investment options for conservative individuals with very low risk appetite.
Savings plans are also preferred by people who want to take care of insurance and savings with one policy itself. These plans are also suitable for people who want to ensure that their life goals at different stages of life can be met easily.
How to compare multiple savings plans?
Before you purchase a savings plan, it is crucial to first compare multiple plans to ensure that you choose the one that is suitable. Here’s a quick overview of the list of metrics that you should use for a comparison –
- Eligibility criteria
- Features offered by the plans
- Amount of premium that you need to pay
- Premium payment options and frequency
- Riders offered by the plans
- Bonus track record*
Savings Plans are easily one of the preferred investment options that you can opt for. They’re customizable, hassle-free, and inculcate financial discipline in your life. That said, to be able to experience the desired results it is important to stay invested for the long-term. This way, you would be in a better position to meet your planned financial and life goals.
* Bonus is not guaranteed and depends on company performance