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Benefits of Investing in a Savings Plan

August 25, 2022

As a child, your parents may have encouraged you to save your pocket money for a rainy day. Once you started earning, they probably encouraged you to save a portion of your salary for the future. Saving allows us to build our financial corpus and secure our future. To help us in this endeavour, insurance companies today offer various retirements, annuity and savings insurance policies. Let’s understand savings plans a little better.

What Are Savings Plans?

Savings plans are financial tools that provide life coverage while allowing the policyholder to build a financial nest egg for the future. They are the ideal type of plan for individuals who prefer very low risk and are looking for guaranteed returns.

Benefits of Savings Plans

Many working individuals use savings plans to secure their financial future. Here are the top five benefits you can enjoy with a savings plan:

  1. A Habit of Saving
    When you purchase a savings plan, you commit to putting a certain amount of money into the plan at regular intervals. Since you have a financial commitment, you make an effort to ensure you save enough money every month. Savings plans encourage you to develop healthy financial habits such as saving and investing, both of which promote financial health in the future.
  2. Life Coverage
    One of the most crucial benefits of savings plans is that it provides life cover for the policyholder. Since savings plans are all about financial stability, the life coverage part of this policy protects the policyholder’s family as well. If anything were to happen to the individual during the policy tenure, the nominee or heir will receive the sum assured payout. In the future, they will also receive the guaranteed benefit offered by the policy.
  3. Meet Financial Goals
    Savings plans allow you to build up a corpus to meet specific financial goals. The money you put away provides returns and periodic payouts so that you can achieve your objectives.
  4. Tax Planning
    As per the Income Tax Act, 19611, taxpayers can claim certain deductions from their taxable income for eligible investments. The amount you put into your savings plan every year is eligible for a deduction of up to INR 1,50,000 per year under Section 80C of the Income Tax Act2. Further, maturity/death proceeds received from life insurance savings plan are also exempt under sec. 10(10D) # subject to conditions mentioned therein.
  5. Customisations and Flexibility
    Every individual is unique. You may have specific financial requirements or goals that you’d like to achieve. You can find a savings plan that allows you to invest as per your comfort and receive payouts whenever you require it most.

How Do I Choose the Right Savings Plan?

To enjoy all the benefits of savings plans, you need to find a policy that matches your financial requirements. Here’s a look at how you can pick the right kind of plan:

Understand Your Financial Goals

Before you start saving, you should have an end goal in mind. You may want to use a savings plan to save up for your retirement or purchase a car. In the first situation, you likely need a long-term plan that allows you to build up a significant corpus over time. If you’re saving up and investing to buy a vehicle, you may need a short-term plan instead.

Think About the Risk

Different kinds of savings plans offer various levels of risk. You must identify policies that meet your risk appetite.

Payment Flexibility

The policy you choose should allow you to make payments at your convenience. You may choose to pay your premium once a year, twice a year, every quarter, or every month. Every good savings plan will also provide payout options. You may want a lump-sum payout at one shot or a staggered monthly income. Whatever you require, ensure you find a policy that meets your needs.

Claim-Settlement Ratio

Finally, always look into the company’s reputation before selecting a policy. Pick a reputed company with a high claim-settlement ratio. The higher the ratio, the more likely your nominee is to receive a fair settlement after raising a valid claim.

You can choose to purchase a savings plan whenever the time is right for you. Before you zero-in on a policy, do your research and identify a company and policy that fulfils your unique requirements. Remember, the plan you choose should help you and your family enjoy financial stability in the future.

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ARN - ED/07/22/27963

1. as per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.

2. Tax benefits are subject to conditions specified u/s 80C of the Income tax Act, 1961.

#. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.