It is difficult to plan for all the ups and downs in one’s life. Nevertheless, forging ahead in the absence of a proper plan is inexcusable, and dangerous even. This is where a guaranteed savings plan, a life insurance scheme, comes in. Wish to understand more about this plan? Read on!
What is a Guaranteed Savings Plan?
A guaranteed Savings Plan is a non-linked, non- participating insurance plan on the life of an insured. There is a guaranteed lump sum amount that is available on maturity or on the death of the insured.
The interest is fixed at the beginning of the savings plan term. Oftentimes, there is a maturity bonus that is added to the fixed lump sum amount that is paid at the end of the maturity period.
While opting in for these savings plans, the insurer will have to fix the duration for which the plan will mature. This time duration may vary from 7 to 18 years.
Eligibility criteria for the Insurer
The main eligibility criteria are as follows –
The person must be a resident of India, the age of entry can be at a minimum of 3- 8 years to a maximum of 70 – 80 years – however, it’s important to note that the age of entry can vary based on the company offering the savings plan. Thus, you must verify the same before finalising which plan to invest in.
Documents Needed for Guaranteed Savings Plan
- Application form
- Address proof
- Identity proof
- Salary and occupation proof
- KYC documents
- Medical documents may be required in some cases to show detailed medical history.
Factors to Consider Before Purchase of Plan
The following factors need to be considered prior to the purchase of a guaranteed savings plan –
- Minimum age criteria
- Maximum age criteria
- Maturity benefit
- Polity term
- Premium paying term
- Yearly premium
- Sum assured
- Additional benefits such as high premium booster which ensures that the insured gets greater benefits for making premium commitments that are higher than most others.
Discontinuation of Policy
If the insurer wishes to discontinue his or her plan, then he or she will receive the sum that is equivalent to the saving plan’s surrender value. This amount will only be received if the policy has crossed the 3 year mark.
Also, if one discontinues the payment of premium after a period of 3 years, then the plan will be considered paid and the interest rate and final sum will be calculated as per the premiums paid prior to the discontinuation of premium payments.
A discontinued policy can be revived too, on the request to the bank and acceptance of the said request by the bank.
What are the advantages of a Guaranteed Savings Plan?
The maturity value will be disclosed upfront.
The premium amounts can be made in a single lumpsum payment or it may be paid at regular intervals. One has the option of customizing their savings plan.
There is no requirement for the insurer to undergo medical examination prior to taking this plan. The policy issued on a mere declaration of good health of the individual. Also, there is a loan option available on the policy. This plan is also covered under the tax benefit criteria.
What are the tax benefits that one can avail from a Guaranteed Savings Plan?
The insurer will be entitled to tax benefits under Section 80C and Section 10 (10D) of the Income Tax Act. The former means that premiums up to INR 1.5 lakhs are exempt from taxes, while the latter means that any sum that a nominee has received due to death benefits (or upon policy maturation) is also tax free.
Points to be considered while going in for Guaranteed Savings Plan
There exist some challenges that the investor has to face while opting in for this plan. One of which is that the guaranteed addition starts only after the completion of a specific period of time, which is substantially long/ far off.
The guaranteed income is paid on the sum assured and not the fund value itself. The benefits of compounding cannot be truly experienced with this product. The returns aren’t as enticing as they are made to seem. It generates an average of 6-7% returns. Tax saving bank deposits or Debt mutual funds can generate a much higher return while providing similar benefits as this guarantee savings plan.
It carries the same inherent problem as all other endowment plans i.e. it does not serve the purpose of providing adequate cover, nor does it provide an opportunity to the insured to amass a healthy corpus.
As someone who cares about their family, you undoubtedly want to ensure their well-being at all times, especially if an unfortunate incident takes place. Investing in a guaranteed savings plan is a great way to make sure that the needs of your loved ones are taken care of.
Some Frequently Asked Questions
- Does the policy come with a trial period?
The insurer has the option of trying the policy for a period of 15 to 20 days and returning the policy document, if they feel dissatisfied about the plan or the service offered by the insurer. The bank is then obliged to return the premium paid without any deductions.
- Is there any grace period offered by the bank for the delayed payment of premium amount?
Yes, indeed. Various banks offer grace periods for delayed payment of the premium amount. During this period, no fine or deduction is made.
- What is surrender of a guaranteed insurance policy?
Surrender implies the termination of the policy prior to the date of maturity in a manner that is in tandem with the provisions of the policy document.
- What is the sum assured in case of death due to other causes?
Provided that the premiums are all paid on time, the sum assured in case of death due to other causes will include, the highest of the following –
- 10 times the Single Premium/Annualised Premium, for Single Pay/Limited Pay respectively
- 105% of Total Premiums paid
- Sum Assured on Maturity
- Any absolute amount assured to be paid on death, which is equal to the Sum Assured on maturity.
- Please note: there is a waiting period of 90 days from the date of inception of the policy that applies to payment of death benefit.