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Savings Plan

Individuals have different types of financial goals like

  • Buying a home

  • Buying a vehicle

  • Going on a trip

  • Planning for a child’s higher education and/or marriage

  • Planning for retirement, etc.

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Each of these goals requires a financial corpus for fulfilment. As such, individuals earn and save money to create a corpus for their goals. This is where savings plans come into the picture. In order to receive the payout from the policy in case of an unfortunate event, your beneficiaries will need to raise a claim with the insurance company from whom you have purchased the plan. The insurer will evaluate the claim application and then pay out the sum assured in case the claim is genuine and policy was in force, when the said event occurred. This process forms the basis of the claim settlement ratio of an insurer.Read Less

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Get Your Life Goals, Done!

Tailored Life Insurance Solutions for your long-term Life Goals.

Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.

What is a Savings Plan?

Savings plans are life insurance plans which provide the dual benefit of insurance protection and savings. The insurance component of the plan covers the risk of premature demise. If the life assured passes away during the policy tenure, the savings plan pays a death benefit. This death benefit can help the family meet their financial needs and also fulfil the goals that the life assured had planned for. On the other hand, if the policy tenure expires and the life assured survives the term, savings plans pay a maturity benefit. The maturity benefit gives the policyholder a financial corpus which can be used to fulfil his goals.

Savings plans are, thus, saving-oriented insurance plans that provide financial security against the risk of premature demise and help you save and create a corpus for your goals.

Tax-saving Plans

tax-saving plans are saving plans which also help with tax saving. when you invest in such plans, you can get a deduction from taxable income on the invested amount. Plus, some tax saving plans also help you earn tax-free returns and the maturity benefit received from them is also exempted from tax.

A common tax-saving plan is the endowment plan. Under endowment plans, you can claim a deduction under Section 80C on the premium paid under old tax regime. Plus, the death or maturity benefit received from the plan, including any bonus or extra additions can also be claimed as an exempted income under Section 10(10D) subject to satisfaction of conditions mentioned therein.

Types of Savings Plans and their Taxation

There are two main types of life insurance savings plans. They are as follows –

A.Endowment plans:

Endowment plans are those which provide insurance coverage during the policy tenure and a maturity benefit if the life assured survives the policy tenure. These plans can be offered as participating or non-participating plans. While participating plans are those that earn bonuses, non-participating plans don’t.

Endowment plans can offer a lump sum benefit on maturity or premature demise. Alternatively, there are plans which offer the benefits in the form of monthly incomes which create a regular income inflow.

 

B.Money back plans:

Money-back plans are those that offer survival benefits during the policy tenure. The survival benefits are paid at predefined intervals and provide liquidity to the policyholder.

For instance, say you buy a money-back policy which offers survival benefits after every 5 years. So, in a 20-year plan, you will get a lump sum benefit in the 5th, 10th and 15th policy years. On maturity, the remaining benefit is paid while in the case of premature demise, the full death benefit is paid irrespective of any money-back benefits already paid.

 

Besides life insurance savings plans, there are other types of savings plans that are available in the market. Some of these include the following –

 

1.Public Provident Fund (PPF)

PPF is a government-backed small saving scheme which offers guaranteed returns and long-term investment.

Tax aspect – The investment made into PPF qualifies for deduction under Section 80C. The interest earned and the maturity proceeds are also tax-free4.

 

2.National Savings Certificate (NSC)

The NSC is a fixed-income saving scheme available for investment from the post office

Tax aspect – The investment made and interest earned in the first four years (which are reinvested) is allowed as a deduction under Section 80C. The interest earned in the fifth year is taxed at your income tax slab rates5.

 

3.Kisan Vikas Patra (KVP)

Another small-saving KVP gives guaranteed returns on investments and has a tenure of 9.5 years.

Tax aspect – Investments made are eligible for deduction under Section 80C6. However, the interest earned is taxable in your hands at your income tax slab rates6.

 

4.Sukanya Samriddhi Yojana (SSY)

This is a saving scheme for the benefit of the girl child which was launched by the government.

Tax aspect – The investment is eligible for deduction under Section 80C. The interest earned and the maturity benefit paid are also tax-free7.

 

5.Employee Provident Fund (EPF)

The EPF scheme is available to salaried employees of eligible organisations and it helps them save for retirement.

Tax aspect – Investments are allowed as a deduction under Section 80C up to Rs.1.5 lakhs subject to specific limits8. The interest earned is also tax-free subject to specific conditions8.

 

6.Fixed Deposits (FD)

Fixed deposits involve saving a lump sum amount for a fixed time and at a fixed interest rate.

Tax aspect – Investment into 5-year deposits qualify for tax deduction under Section 80C up to Rs.1.5 lakhs9. Interest earned is taxable in your hands if you are below 60. Senior citizens can enjoy tax benefits on the interest earned up to Rs.50,000 under Section 80TTB10.

 

7.National Pension System (NPS)

The NPS scheme is a market-linked scheme aimed at creating a corpus for retirement.

Tax aspect – Investments into the NPS scheme are allowed as a deduction under Section 80CCD (1) up to Rs.1.5 lakhs11. Additional deduction on investment is also allowed under Section 80CCD (1B) 11. On maturity, 60% of the commuted corpus is tax-free while the annuity payouts are taxed at your slab rates11.

 

Note: that above deduction under Section 80C are available only under old tax regime.

Term Insurance Plans by Bajaj Allianz Life

Why Do You Need a Savings Plan?

Here are some reasons which stress the importance of life insurance savings plans –

1. Helps create savings

As the name suggests, savings plans help you to create savings for your financial goals. The maturity benefit offered under the plan gives you a corpus to fulfil your goals.

2. Are low-risk products

Life insurance savings plans are traditional insurance plans that do not invest your premium in market-linked securities. As such, you can create a safe and stable corpus without worrying about market volatility.

3. Bonus adds to the corpus

If you buy participating savings plans, you will be entitled to earn bonus additions during the policy tenure if you have paid the due premiums and the company declares a bonus. These bonus additions add to the plan benefits and help you get a higher corpus on premature demise or maturity.

4. Provide insurance protection

As mentioned earlier, the insurance aspect of savings plans provides financial protection against the risk of premature demise. If a family’s breadwinner passes away, the family might incur a financial loss. The death benefit paid by a savings plan (provided the life assured passes away during the policy tenure) takes care of the financial loss giving the family the much-needed peace of mind.

5. Facility of loan

Life insurance savings plans offer a loan facility wherein you can take a loan up to a specified part of the policy’s surrender value. This loan gives you the necessary funds for your needs without having to exit the policy. Alternatively, you can use your life insurance savings plans as collateral and get a loan against their value.

6. Tax benefits

Lastly, the tax benefits offered by life insurance savings plans add icing to the cake. Here are the benefits that you get –

  • The premium paid for the policy qualifies as a deduction under Section 80C of the Income Tax Act of 1961under old tax regime. The maximum deduction allowed is Rs.1.5 lakhs1. To claim the deduction, the maximum allowed premium is defined as follows –
  • 20% of the capital sum assured for policies issued on or after 1st April 20121
  • 10% of the capital sum assured for policies issued on or before 31st March 20121
  • 15% of the capital sum assured for policies issued on or after 1st April 2013 if the life assured suffers from a disease or disability defined under Sections 80U or 80DDB, respectively1.
  • The death benefit received from the savings plans is always tax-free2
  • The maturity benefit received from the savings plans is also tax-free under Section 10(10D) if the premium is up to 10%, 15% or 20% of the capital sum assured depending on when the policy was issued3.
  • However, for policies issued on or after 1st April 2023, the maturity benefit will be tax-free under Section 10(10D) if the annual aggregate premium paid for all traditional plans is up to Rs.5 lakhs3 and other conditions as mentioned in Section 10(10D) are satisfied.

Who should buy a Savings Plan?

A savings plan suits individuals looking to create savings for their financial goals and who also want insurance coverage. It is suitable for –

  1. Young adults who are planning to buy a car or make a down payment on their dream home
  2. Married couples who want to plan for their joint financial goals like buying a home, taking a trip, etc.
  3. Married couples with children who want to save up for their children’s higher education and marriage
  4. Adults who are in their 40s and who plan on creating a retirement corpus for their golden years

How long should one invest in a Savings Plan?

The duration of a savings plan depends on your financial needs and goals. To choose the right term, you should assess the goal for which you want to invest in the savings plan in the first place.

For instance, say you have a minor child aged 2 years. You want to create a corpus for the child’s higher education abroad. If your child goes to an international university at 18 years of age, you can choose a tenure of 15 or 16 years that would give you the corpus when you need it.

Similarly, for individuals in their 40s planning a retirement fund, a tenure of 18 years to 20 years can give them a corpus at 65 years of age.

So, assess your financial goals and then choose the policy tenure.

Importance of Buying a Best Savings Plan

There are multiple savings plans available in the market. Among them, choosing the best is important. Here are some reasons why –

  • You can get the right insurance coverage with the best savings plan.
  • The premiums would be low and competitive without compromising on the plan’s benefits and scope of coverage
  • You can get a variety of riders to add to the savings plan for a customised and more inclusive scope of coverage. The riders would provide added protection at lower premiums and give better financial security.
  • You can get the best benefits (death benefit or maturity benefit) with the right savings plan.
  • You can choose a plan which has a simple claim process for easy claim settlements

Features of Savings Plans

Some of the salient features of savings plans are as follows –

  1. They offer multiple premium payment modes – single premium wherein you pay the premium once, limited premium wherein you pay premiums for a limited tenure and regular premiums wherein you pay premiums throughout the policy tenure
  2. Goal-oriented savings plans are also available to help you save for a particular goal. For instance, you can choose child plans to save for your child’s secured financial future
  3. Savings plans might offer bonuses, guaranteed additions, loyalty additions, wealth boosters and other forms of returns to enhance the policy benefits
  4. You can choose a flexible tenure depending on your investment horizon

How to compare different savings plans?

You can compare different savings plans on the following parameters –

Coverage vis-à-vis premium charged

Coverage vis-à-vis premium charged

Check the coverage offered under the policy vis-à-vis the premium charged. Compare the plans on the competitiveness of the premium basis the covere offered.

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Policy benefits

Policy benefits

Assess the benefits payable on premature demise or maturity.

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Bonus or other forms of additions

Bonus or other forms of additions

If you are choosing participating savings plans, check the bonus terms. Also, compare the previous bonus rates offered to get an idea of how much you can expect. However, previous rates are not indicative of future bonus rates. In the case of non-participating plans, look for other forms of additions offered under the plan that can boost the policy benefits.

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Benefit payout modes

Benefit payout modes

Savings plans can offer the policy benefits in a lump sum, in the form of regular incomes or in a combination of both. Depending on your financial needs, check the benefit payout mode and choose one that aligns with your goals.

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Riders offered

Riders offered

Lastly, check the riders offered with savings plans. A wide choice of riders at competitive premiums would be preferable since it would allow you to customise your coverage and enhance it.

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How to choose the right savings plan?

Here are some tips for choosing the right savings plan –

  1. Choose a plan that offers the maximum coverage at the most competitive premium rates
  2. A plan with a wide variety of riders, competitively priced, would be the right choice
  3. The right savings plans should have an easy claim settlement process for a hassle-free experience
  4. The benefits payable under the plan should match your financial needs

Factors to Consider Before Investing in a Best Savings Plan

When investing in the best savings plans, here are some factors to consider –

Sum assured

The sum assured

An adequate sum assured is important to give you the coverage that you need. If the sum assured is sufficient, it will help your family tackle the financial loss suffered in your absence.

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Premium

The premium

The premium of the policy should be affordable so that you can pay it on the due dates without incurring financial strain. Very high or unaffordable premiums might result in a lapse wherein the benefits would be reduced and you would lose out.

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Riders

Riders

Check the riders offered with the savings plan. Choose suitable riders, depending on your coverage needs, for an all-inclusive scope of coverage.

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Premium payment terms and frequency

Premium payment terms and frequency

If the savings plan offers a flexible premium payment term (single, limited or regular premiums), choose a term which would be affordable. You can also choose from the different premium payment modes (annual, half-yearly, quarterly or monthly) to pay the premium most affordably.

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Factors Impacting Savings Plan Premium

Some factors that impact the premium of savings plans are as follows –

Factor

How it affects the premium

Age

The older you are the higher would be the premium and vice-versa

Medical history

If you have existing medical conditions, the premiums would be higher

Family history

A family history of illness or premature death increases the premium

Occupation

If you are employed in a dangerous occupation, like mining, aviation, construction, etc., the premiums would be higher

Lifestyle habits

Smoking and drinking alcohol increase your mortality risk. As such, premiums for these lifestyle habits are higher

Height and weight

The height and weight determine your Body Mass Index (BMI). Premiums are standard for normal BMI. However, if your BMI indicates overweight or underweight, the premium might be higher

Sum assured chosen

The higher the sum assured that you choose the higher would be the premium payable

Policy tenure

Long-term savings plans have lower annual premiums compared to short-term savings plans

Premium payment term

Single premiums are the highest followed by limited premiums and lastly, regular premiums

Premium payment frequency

Annual premiums are usually the lowest. If you pay premiums in the half-yearly, quarterly or monthly mode, you might have to pay more

Riders selected

Riders come at an additional premium. Every rider added to the policy increases the total premium outgo

Documents Required to Invest in a Savings Plan

The requirement for documents varies across insurance companies. However, some common documents required to buy savings plans are as follows –

Recent coloured photographs

Recent coloured photographs

Identity proof

Age proof

Address proof

Income proof

Medical report

Aadhaar Card

PAN Card

other document

Income proof (Premium>5 Lakh, Total Actual Sum Assured>50Lakh)

Medical examination report (if pre-entrance health check-ups were required by the insurance company)

Any other document needed by the insurance company

Why Bajaj Allianz Life Insurance ?

Bajaj Allianz Life, one of India's leading Private Insurer, committed to offer value packed and innovative products to meet you Life Goals

99.23%

Claim Settlement Ratio~

1 Day

Claim Approval%

AAA

CARE Stable Rating$

₹1,09,829Cr

Assets Under Management (AUM)**

4.19 Cr

Number of Lives Covered#

432%

Solvency Ratio^

Disclaimer:~Individual Death Claim Settlement Ratio for FY 2023-2024, %96.70% of non-investigative individual claims approved in one working day for FY 2023-24. 1 day is counted from date of intimation of claim before 3 PM on a working day (excluding Non-NAV days for ULIP) at Bajaj Allianz Life offices, $For details refer to press release published by CARE**All figures as on 31 March 2024, ^Solvency ratio 432% as at 31 March 2024 against IRDAI mandated 150%, #Individual Group.

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a Conditions Apply – The Guaranteed benefits are dependent on policy term, premium payment term availed along with other variable factors. For more details please refer to sales brochure.

b Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

c Cash bonus is not guaranteed

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f Sum Assured options: Sum Assured 1.5 times of Single Premium or Enhanced Sum Assured - 10 times of Single Premium

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Bajaj Allianz Life Assured Wealth Goal Platinum-A Non linked, Non Participating, Individual, Life Insurance Savings Plan (UIN No:116N188V03)

%Conditions Apply – The Guaranteed benefits are dependent on policy term, premium payment term availed along with other variable factors. For more details please refer to sales brochure.

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

#Choice of paying premiums for 5, 6, 7, 8, 9, 10 and 12 years

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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