What Is A Savings Plan?
A savings plan, also known as an endowment plan, is a kind of life insurance policy that offers the dual benefits of savings and insurance. The insurance component works like a typical life cover, and it comes into effect if you do not survive the policy term.
However, if you outlive the policy term, you get the benefit of the savings component in this kind of life insurance. This is paid out as a maturity benefit at the time of policy maturity. It includes a guaranteed payout component along with loyalty additions and bonuses, if any.
You can use these payouts to fulfil any life goal that you may have at the time the policy matures. For instance, if you receive the payouts when you are 55 years of age, you can make use of the funds to pay for your children's higher education or graduation, or you can use the payouts to close any major debts you may have. You can even use the funds to build your retirement corpus.
What Is The Right Age To Buy A Savings Plan?
A savings plan, as you can see, is a long-term investment option. You disciplined pay your premiums over 20 to 30 years and reap the returns when the policy reaches the maturity date. So, what is the right age to buy a savings plan? The short answer is this - the earlier you buy it, the better.
Let us take a closer look at what buying an endowment plan entails in your 20s, 30s, and 40s.
Buying an endowment plan in your 20s:
Your 20s may be the best time to buy an endowment plan for two key reasons - lower premiums and a longer investment tenure.
The younger you are, the lower your life insurance premiums will be. This is because your risk of mortality is lower. Insurance providers consider young and healthy people as low-risk policyholders. So, the premium charged is also quite affordable. If you buy a savings plan in your 20s, you can lock in a lower premium rate.
Also, buying a savings plan in your 20s means that you can continue to invest in your savings plan over the long term. This gives you tax benefits under section 80C of the Income Tax Act, 1961 right from the time you start earning.
Buying a savings plan in your 20s also ensures that your loved ones - like your spouse, children and/or dependent parents - are protected early on. So, you can rest assured that in your absence, they will have a financial safety net to rely on.
Buying an endowment plan in your 30s:
If you have not purchased an endowment plan in your 20s, your 30s may be the next best time to buy one. This is because although the premiums for a 30-year-old policyholder are slightly higher, the rise in income in your 30s can help you pay for your life cover comfortably.
In your 30s, you will also be in a better position to figure out the right amount of life cover for your family. So, if you buy a savings plan in your 30s, you can ensure that you have adequate coverage.
For instance, in your 20s, you may be single or may be married without children. You may not have any housing loan or major personal loans either. So, you are likely to think a smaller life cover - say around Rs. 50 lakhs - will be enough to secure your dependents. But in your 30s, your family may grow to include children, and your financial portfolio may include more debts. This is when you may realise that you need a Rs. 1 crore cover.
So, if you buy a savings plan in your 30s, you can right away get adequate coverage. On the other hand, if you purchased a plan in your 20s, make sure you revisit your insurance cover in your 30s and check if it is enough to cover your family's new needs and goals.
Buying an endowment plan in your 40s or later:
You can still buy an endowment plan in your 40s or later. But the premiums for policyholders in this age bracket will be significantly higher. You may also need to undergo medical tests to verify your eligibility for a cover.
That said, if you do not have any insurance cover till you attain the 40-year age group, it is always a good idea to get your life insurance plan right away, even if you are a bit older. As long as you are eligible, you can always invest in a life cover to protect your loved ones. It is a better option to get your life cover when you are older than not getting it at all.
So, if you are 40 years or older and do not have a life cover yet, consider getting a savings plan at the earliest, so you can enjoy the dual benefits of a life cover as well as a guaranteed savings component.
Conclusion
The bottom line is that the earlier you get your savings plan, the better. Nevertheless, make sure you check the age criteria before buying your life cover. And if you already have a term plan or any other kind of life cover, you can still buy an endowment plan to secure your long-term life goals and protect your family under the same policy.
There are many advantages of having a savings plan in your financial portfolio. Knowing how a guaranteed savings plan can benefit you will help you understand why it is important to buy your policy when you are young and healthy. If you are curious about the reasons to buy a guaranteed savings plan, we have a blog that can give you all the details you need.
Read it here
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1800-270-7000
13 January 2023
5 min read
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