Importance of Savings Plan during a Pandemic You Must Know

 

We love to make plans, don’t we? Making decisions and keeping promises help us feel empowered. Life is cruising along with our hands perfectly in control of the steering wheel.

Then, a once in a century pandemic comes along throwing a massive spoke in our wheel. Uncertainty sets in, along with worries. We constantly think about the health of ourselves and our loved ones, the freefalling economy and a debatable path to recovery. Many are realising the importance of a good savings plan and the peace of mind it brings with it.

Importance of Savings Plan during a Pandemic

Financially, this pandemic has been a disaster of epic proportions, exposing every hidden kink in our armour. 122 million people, many in the informal sector of our economy, have lost their jobs. 53% of businesses have either endured severe losses or shut shop.

Is there anything that we can learn from this disaster to set ourselves up better? Let’s learn about the features of a savings plan. But before that, let’s quickly run through some pandemic teachings:

• Long-term Financial Planning:
  

  The “I earn, I spend” attitude coupled with a laidback view towards savings is a recipe for disaster. If the pandemic has taught us anything, it is that we need to have a strong backup plan for our loved ones in case of an eventuality. Hone-in on your financial goals and think about upcoming liabilities and major expenses. Keep revisiting your ideas and make course corrections as required.

• Liquidity in Case of an Emergency:
  

  A week’s stay at a hospital of your choice as you recover from the infection, can set you back a few lakh rupees. You may not have access to the cash you need since your money is tied up across various investment avenues. An important teaching of the pandemic has been to ensure that some part of our investments is immediately available for use. This has also been important for those in businesses who require emergency capital to pay off their bills and employee salaries. One of the features of a savings plan is that you can build emergency capital as you go along!

• Need for a Guaranteed Savings Plan:
  

  One lasting lesson of this pandemic has been to avoid looking at savings plans as just a tax saving option. It is important to understand what a savings plan is and choose the one that provides financial security to your loved ones in times of need.   

What is a Savings Plan?

A guaranteed savings plan is a non-participating (no dividends/bonuses) and non-endowment (meant for immediate and full disbursement) life insurance plan. Your premiums will be fixed for a specific period and their complete and on-time payment is mandatory for a full disbursal at maturity. When the plan completes its term, you receive:

• A sum assured equal to the sum of all the premiums paid
• A fixed rate of interest added to the fund every year of the plan term
• A maturity bonus or a fixed lump-sum amount added to the fund at maturity

The age of entry varies as per the insurer offering the plan, ranging from 0 to 60 years. The maturity age ranges from 18 to 75. On the sudden death of the policyholder, the nominee (or family) gets the returns calculated based on the number of premiums paid by the holder.

Features of a Savings Plan

Studying the features of a savings plan will help you understand the benefits better. While these may vary between providers, you must discuss the plan in detail and customise it as per your lifestyle, liabilities and upcoming financial priorities.

• Premiums:
  

  You can choose to pay your premiums all at once if you have the liquid cash available at your disposal. For those who want a relaxed payment plan, premium payments can be spread out over months or years. Never forget to make your premium payments since it can cause your coverage to lapse.

• Policy Term:
  

  Again, decide when you will need to see the payment. For some, it is a short-term savings plan meant to pay for a child’s college fund. For others, it is a long-term investment for their retirement. You can choose a period from 7 years (short-term) to 10 or more years (long-term).

• Maturity & Death Benefits:
  

  Upon maturity of the plan, the policy is scheduled for a payout to the holder along with any bonuses or lump-sum payments. This would also arise in case of the sudden death of the nominee. The available interest rates are much higher than a traditional term policy.

• Trial and Grace Periods:
  

  The policyholder has the option of cancelling the policy during the trial period. The trial period can last up to a month and helps the holder assess the policy and its benefits. The grace period comes into play if you forget a premium payment (usually 30 days). Should you make the payment during the grace period, your policy and its benefits will remain unaffected.