How to make the most of savings plans
What's one of the best ways to save up for your future and also simultaneously secure your family's future? The answer lies in two words - savings plans. Also known as endowment plans, savings plans combine two financial advantages in one nifty product - insurance and savings.
Let's take a look at what savings plans are, and how you can make the most of what they offer.
What is a savings plan?
A savings plan is a kind of life insurance plan that gives you the dual advantage of a life cover and savings. As with all life insurance plans, you will need to pay premiums to the life insurance provider. And you also get to enjoy tax benefits under section 80C of the Income Tax Act, 1961.
By purchasing a savings plan, you get to enjoy a life cover over the course of the policy term. In addition to this, you can also invest your money in a systematic and disciplined manner. This makes it easy for you to achieve your short-term goals and your long-term goals as planned.
Before you buy a savings plan, however, you need to know how you can make the most of this kind of life insurance. That way, you can ensure that you get optimal coverage and benefits. So, here are 5 tips to help make the most of your savings plan.
Buy your savings plan early in life
Irrespective of the kind of life insurance, buying your policy at a younger age gives you a distinct advantage - you get to enjoy more affordable premium rates. The reason your premiums are generally lower if you buy your life cover young is that insurers do not consider you as a high risk buyer. Naturally, this applies to savings plans as well.
So, one of the best ways to make the most of savings plans is to buy your policy early in life. This way, you can enjoy low premium rates, without compromising on the other benefits of your savings plan. On the other hand, if you put off the purchase for a much later point in time, your premiums may increase. This would skew the overall cost-benefit balance and make your purchase less than optimal.
Compare your options before purchase
Another way to make the most of your savings plan is to ensure that you buy the policy that meets your needs in the best possible manner. And how can you do this? Well, you simply need to compare all the options available to you. That way, you can see how the features of different savings plans stack up against each other.
Some savings plans, for instance, may give you the added advantage of extra income. Others, like the ABSLI Guaranteed Milestone Plan, may give you the benefit of guaranteed additions that boost your corpus. Comparing your options online can give you a better idea of which savings plan may be right for you.
Choose the right plan option
Once you've zeroed in on a savings plan, you may find that there are different plan options to choose from within that plan itself. The policy term and the premium payment payment may vary between these plan options. They may also offer different kinds of features and benefits. To make the most of your savings plan, you need to choose the right plan option.
For instance, one option may give you the benefit of enjoying a whole life cover. Another option may give you the benefit of joint coverage for your spouse. By comparing the different plan options, you can choose the one that best meets your specific requirements. This ensures that your savings plan is optimized for your needs.
Opt for the right premium payment term
Not all savings plans come with the same premium payment term. Broadly speaking, you may get to choose between the following three kinds of premium payment terms.
- Single premium
- Limited premium
- Regular premium
In a single premium plan, you only need to pay your premium once. This premium, needless to say, will be a huge lump sum amount. In a limited premium plan, your premium payment term is shorter than the policy term. And in a regular premium plan, your premium payment term is the same as the policy term. Before you decide on which savings plan to purchase, make sure that you are comfortable with the premium payment term (PPT).
Keep in mind that the shorter the PPT, the higher each premium installment will be. However, the overall premium reduces if you opt for a shorter premium payment term. Ideally, if you are self-employed or if you are closer to retirement, a limited premium plan may be a better choice. On the other hand, if you have a stable salaried job and you have many working years ahead of you, you could opt for a regular premium plan.
The end goal is to choose a plan that is convenient for you financially. That way, you can ensure that you do not miss out on any premium payment and risk your policy lapsing.
Enhance your cover with riders
Adding riders to your base savings plan is one of the most effective ways to enhance the protection offered and make the most of your life cover. Riders offer additional benefits over and above what your base plan gives you. So, before you make a purchase, check the riders that are offered with the policy of your choice and select the ones that you will benefit from.
There are different kinds of riders available, like critical illness riders, waiver of premium riders, surgical care riders, hospital care riders, and accidental death benefit riders. These riders all come at a nominal additional cost. However, the benefits they offer far exceed this nominal extra expense.
Bonus tip: Choose your savings plan based on your life goals
All things considered, you can make the most of your savings plan only when it is aligned with your life goals. So, before you make a purchase, write down your goals and the amount needed to fulfill them. And assign a timeframe for each of them. Based on the funds needed and investment horizon, you can choose the coverage and the policy term.
If you purchase a savings plan without factoring in your goals, your maturity benefits may not be adequate to cover the cost of those goals. Or, the policy term may be shorter or longer than the timeframe needed for your life goals. That's why it's important to consider these factors before you buy a savings plan.
When you make an informed purchase decision, your savings plan can help you meet your goals at every life stage. So, understand the options available to you and check the features available for each savings plan. Then, make your choice based on what works best for you. Also, keep in mind that irrespective of the savings plan you choose, you get to enjoy tax benefits. Remember to make use of them to bring down your tax burden.
ABSLI Guaranteed Milestone Plan (UIN: 109N106V10) is a non-participating traditional insurance plan. ADV/9/21-22/1059
ABSLI Vision LifeIncome Plus Plan
Get guaranteed regular income, cash-in-hand even while paying premiums PLUS life cover up to a maximum of age 100 UIN: 109N131V01
- *Guaranteed regular income for a period you choose
- Option to get cash-in-hand even while paying premiums
- Life cover up to a maximum of age 100
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