Planning your finances for future goals is one of the smartest things you can do, and that’s where a savings plan can help. It can help you inculcate financial discipline and provide long-term security. Moreover, by opting for specific savings plans, you can enjoy the combined benefits of insurance protection with consistent returns. You also have investment-linked options like a ULIP plan that offer greater growth potential. Let’s understand what savings plans are and how they work.
What Is a Savings Plan?
A savings plan is a financial product that helps you accumulate wealth over time by making regular contributions. You can make these contributions in the form of premiums. These plans are generally offered by insurance companies and may come with life insurance coverage. In simple terms, it is a disciplined way to save and grow your money while having the added protection of an insurance policy.
A savings plan can be traditional or market-linked. Traditional plans provide guaranteed returns at maturity, while market-linked options such as ULIP plans give you exposure to equity and debt markets. A ULIP plan will help your money grow based on market performance
How Do Savings Plans Work?
Here’s how it works:
-
Premium Payment
You choose the premium amount and the policy duration based on your financial goals.
-
Fund Allocation
In the case of a traditional plan, your money is invested in low-risk instruments. With a ULIP plan, your premiums are used to fund life insurance coverage as well as invest in equity, debt, or balanced funds.
-
Life Coverage
Most savings plans include a life cover which ensures that your family is financially protected in case something happens to you during the policy term.
-
Returns and Maturity
When the tenure ends, the insurer provides you the accumulated amount. In a traditional savings plan, this is the sum assured plus bonuses (if applicable). In ULIP plans, the maturity amount depends on market performance.
-
Payout Options
Depending on the type of plan, you can receive the maturity amount as a lump sum or as regular income over a period. The best investment plan will give you the freedom to customise your policy as per your needs, whether it be in payout options, premium payment frequency, switching funds, etc.
Why Consider a ULIP Plan as a Savings Option?
Since a ULIP is market-linked, it can deliver higher returns, especially over the long term. ULIPs also provide tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, subject to certain terms and conditions.**
Before you invest, make sure to research thoroughly and ensure you choose the best investment plan that meets your needs as well as those of your family (in your absence).Whether you choose a guaranteed plan or a ULIP plan for higher returns, a structured savings approach is important to build financial stability. Choose the best investment plan wisely and start early to make the most of your savings journey.
** Tax exemptions are as per applicable tax laws from time to time.