Benefits of a Guaranteed Savings Plan

There are different kinds of life insurance plans in the insurance market today. Some, like term plans, offer you only a life cover. Others go beyond this and give you a wide range of benefits that can help you achieve your life goals as planned. One such product is a guaranteed savings plan.

As its name indicates, it includes an element of guaranteed savings benefits, making it ideal for conservative investors who want to protect their loved ones, as well as for risk-takers who want to add some stability to their portfolio.

A guaranteed savings plan is essentially a type of an insurance plan that offers guaranteed maturity benefits in addition to a life cover. As the policyholder, you receive a lump sum amount on maturity of the plan. This is usually equal to the total amount of premiums paid, along with bonuses and other loyalty additions.

Since this kind of an insurance plan is non-linked and non-participating, the returns are assured and don't depend on the performance of the markets. So, investing in a savings plan allows policyholders to save up for the big goals over the long term by steadily building a corpus with consistem premium payments.

You get to enjoy a plethora of different benefits by investing in a guaranteed savings plan. Here's a brief overview of some of them.

Maturity Benefits:
If you survive until the end of the tenure of the savings plan, you get to receive a guaranteed lump sum maturity benefit. This includes all of the cumulative premium payments that you made till the maturity date, yearly bonuses, and loyalty additions. However, the maturity benefits would only be payable if you've paid all of the premiums on time.

Death benefits:
Since a guaranteed savings plan is, at its core, an insurance plan, you receive a life cover as the primary benefit. And in the case of death during the tenure of the plan, the nominees listed under the plan would receive financial payouts from the insurance provider. This would include the sum assured under the plan and all the yearly bonuses accrued up until the point of death.

Loan facility:
One of the major benefits of a guaranteed savings plan is that it can be used to avail a loan from the insurance provider in times of dire need and emergencies. The amount of loan that you can avail tends to differ based on the kind of plan that you opt for.

That said, there is a minimum limit and maximum limit to the amount of loan that you can opt for. Generally, the minimum amount of loan that you can avail is restricted to Rs. 20,000, whereas the maximum that you can opt for is capped at 80% of the total surrender value of the plan at the time of taking out the loan.

Tax Benefits²:
By investing in a guaranteed savings plan, you get to save tax as well. Section 80C of the Income Tax Act, 1961 allows you to deduct all of the premiums that you pay towards a life insurance plan in a financial year from your total taxable income for that year. The maximum amount that you can claim in a financial year under this section is Rs. 1.5 lakhs.

The tax benefits² don't just stop there though. The maturity benefits that you receive at the end of the plan tenure are also completely exempt from tax under section 10(10D) of the Income Tax Act, 1961. Similarly, section 10(10D) also states that the death benefits that the nominees of a guaranteed savings plan receive are tax-free.

Now, before you go ahead and purchase a savings plan for yourself, there are certain factors that you should consider. Let's take a brief look at what they are.

Future goals
Your future goals play a huge part when it comes to choosing the right kind of guaranteed1 savings plan. For instance, if your goal is to save for your retirement, it is a good idea to choose a plan with a long tenure. On the other hand, if your goal is to fund your child's education, you may have to choose a plan with a tenure that aligns with that goal.

Riders
Riders are basically optional add-ons that you can choose at the time of purchase of an insurance plan. They enhance the benefits offered by the plan for a nominal additional premium.

Some of the riders that you can opt for include the waiver of premium rider, hospital care rider, critical illness rider, and accidental death benefit rider, among others. That said, keep in mind that opting for more riders than necessary can make the premium quite expensive. Therefore, it is a good idea to choose only the ones that you require.

Credentials of the insurance provider
Considering the fact that you would be investing your hard-earned money, it is crucial to choose the right insurance provider. One of the best ways to determine the trustworthiness of an insurer is to take a good look at their credentials like their solvency ratio and their claim settlement ratio. The solvency ratio indicates how strong the company's cash flow is, while the claim settlement ratio indicates the proportion of claims received that the insurer settles in each year. The higher these two ratios are, the better.

A guaranteed¹ savings plan is an exceptional financial product that intelligently combines the elements of savings and insurance. With the right plan in your portfolio, you can not only ensure financial protection for your family, but also be in a position where you can satisfy your long-term goals.