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!
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.
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.
The following factors need to be considered prior to the purchase of a guaranteed savings plan –
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.
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.
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.
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.
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