Importance of Combining Term and Savings Plan in Your Portfolio

If you are planning to buy a life insurance plan, congratulations! When it comes to securing your future as well as the future of your family, a life cover is one of the most essential financial products available in the Indian financial markets.

Term Plan and Goal-Based Savings Plan - Article - ABSLI As a beginner, though, you may be quite confused about the kind of a life cover you need to buy. More often than not, people new to the insurance market have a tough time choosing between the simplest kind of life insurance - aka term plans - and its slightly more expensive (and more beneficial) counterpart - savings plans.

But what if we told you that it doesn't always have to be an either/or scenario between these two kinds of life insurance? In fact, there are many reasons to include a term plan AND a goal-based savings plan in your portfolio.

Interested in discovering why this could actually benefit you? Well, let's get started then.

A term insurance plan is the simplest kind of life insurance available in the market. As its name indicates, it offers you coverage for a specified term, known as the policy term. In case the insured person passes away during this period, the insurance provider pays out death benefits to the nominee mentioned in the plan.

However, in case the insured person survives the policy term, no benefits are paid out by the insurer. In other words, term plans are pure life covers that only offer death benefits.

There are many benefits that you get to experience by including a term insurance plan in your portfolio. Here's a preview.

• A high sum assured at affordable premiums
  Term insurance plans give you ample coverage at extremely affordable premiums. Since they are pure protection plans, the premium charged is very nominal.


• Additional riders to enhance coverage
  Term insurance plans also give you the option to enhance the benefits offered by opting for add-on riders like the accidental death and disability rider, the critical illness rider and the hospital care rider. These riders offer financial benefits for specific expenses and incidents.


• Protection for your loved ones
  Term insurance plans also give your loved ones a reliable financial safety net to fall back on in case something untoward happens to you. The payouts made by your insurance provider can help your family meet their life goals as planned, without any financial stress.

Despite the many obvious benefits of term insurance, it is still a purely protective cover. It has no savings component, so if you survive the policy term, you may not receive any benefits at the end of that period.

Even in the case of term plans that offer the Return of Premium (ROP) option, you get back just the premiums that you paid. In other words, term insurance plans are excellent at offering sufficient coverage for affordable premiums. But they do not help you save up for your long-term life goals.

A goal-based savings plan, however, can help you with this

A goal-based savings plan, also known as an endowment plan, is a kind of life insurance that helps you save up for your life goals. In addition to the life cover it offers, this kind of insurance plan also comes with an element of savings.

So, at the time of maturity, if the insured person survives the period, the insurance provider pays out maturity benefits to the policyholder. These maturity benefits include the sum assured under the plan as well as the bonus amounts that have been accumulated during the policy term.

A goal-based savings plan comes with its own set of advantages. You can make use of the maturity benefits paid out under the plan to meet your life goals. Here are some of the goals that you can take care of using the payouts from your savings plan.

• Your child's higher education
  You can time the purchase and payouts from your savings plan in such a way that they coincide with the time your child attains college-going age. The payouts can help you take care of this major milestone.


• Repaying your debt
  Debt repayment may be another long-term goal you've been chasing. Carrying a debt into your 50s or 60s can be quite cumbersome on your finances. The maturity benefits from a savings plan can help you pay off your debts either partially or totally.


• Your retirement goals
  If your savings plan matures right around the time you plan to retire, the lump sum payouts from your insurance plan can help you start your post-retirement life with a sizable corpus to fall back on.

So, as you can see, both a term plan and a savings plan have their own individual benefits. By including both these kinds of life covers in your portfolio, you can rest assured that you and your loved ones are financially well-protected in case of any unexpected developments in life. You can also meet your life goals more easily, thanks to the savings component in your life insurance plan.