From Safety Net to Wealth Builder: The Dual Advantage Of Life Insurance Savings Plans

Life insurance savings plans are a dependable financial instrument that helps people achieve both immediate financial security and long-term wealth accumulation. The plans unite life insurance benefits with savings discipline to help policyholders and their families achieve financial stability. Apart from providing moderate life cover, it can help one reach their essential life goals, including a child’s education expenses, home purchase, and retirement savings, among others.

The policy combines life insurance protection with guaranteed maturity benefits, which include both lump sum payments and regular installments while providing death benefit coverage for family members in case of unfortunate demise of the policyholder.

“The policy upholds the present family lifestyle and helps protect all future plans even in the absence of life assured. The savings plans help people manage their financial responsibilities during times of financial disruption, which can occur unexpectedly,” says Sabyasachi Sarkar, MD & CEO, Go Digit Life Insurance.

Define Your Financial Goals and Timeline

Choosing the right life insurance savings plan begins with understanding your financial goals and the time horizon for achieving them. Insurance solutions for life insurance work best at different stages of your financial development:

Short-Term Goals (1-5 Years): Market-linked plans do not suit your needs for short-term goals as they carry market volatility that makes them unsuitable for goals like saving for car down payment or building an emergency fund. For these goals, stability and liquidity are key.

Medium-to-Long-Term Goals (5-15+ Years): For aspirations like funding your child’s education, planning for retirement, or creating long-term wealth, life insurance savings plans offer a disciplined and structured approach.

“These plans unite protection benefits with savings capabilities that enable you to create financial security for your family overtime. The policy can be customized any time during the term to tradeoff between need of income and need of lump sum amount,” informs Sarkar.

Who Should Consider Such a Plan?

The plan is best suited for:

·      Individuals seeking a combination of security and systematic long-term savings.

·      Families requiring protection from financial risks in their lives.

·      People who want to save for particular goals, including their children's education, dream home or retirement.

·      People who receive salaries and require automated savings systems that offer risk-free compounding benefits.

How to Select the Right Life Insurance Savings Plan

Keep the following things in mind before opting for a plan that best suits your needs:

      i.  The first step requires individuals to identify their financial requirements and create all necessary time-sensitive objectives. Select payment terms and distribution methods between lump sums and monthly payments based on the chosen tenures.

    ii.  The premium level needs assessment for affordability because it enables continuous policy upkeep. Don’t over commit and use premium calculators provided by insurers.

  iii.  Select insurance plans that provide flexible withdrawal options and loan capabilities together with various protection riders. 

 iv.   Review the investment returns and expenses by checking clear statements about maturity values, bonus payments and fees and illustration documents before making a decision. 

  v.  Review Insurer’s Reputation: A good insurer should have a high claim settlement ratio, good customer service and financial strength; so, choose a trusted insurer.

Key Features of a Life Insurance Savings Plan

Life cover provides financial protection to dependents through a guaranteed sum assured, which becomes payable when the policyholder passes away during the policy duration. It also includes a maturity benefit that provides a single payment that accumulates from bonuses and guaranteed additions when the policy reaches its end date. The benefit enables people to achieve their major life goals and improve their retirement quality of life.

Most plans offer flexible premium payment options through monthly, quarterly, half-yearly and annual payment schedules which accommodate different income patterns. The policy also includes an "Income" feature both during and post the policy term that can help generate additional income stream.

“These savings plans provide flexibility to customize the policy benefits during the policy term to tradeoff between need of income and need of lump sum. The policyholder can also access emergency funds through a loan from the plan after sufficient value accumulation without having to give up the policy,” says Sarkar.

The policies include Riders and Add-Ons that can provide optional protection features like accidental death coverage, critical illness protection, and premium waiver options. The premiums you pay also qualify for tax benefits under Section 80C of the Income Tax Act up to Rs 1.5 lakh per annum, and the maturity and death benefits receive tax-free treatment under Section 10(10D) when you meet specific requirements.

By taking a systematic approach, you can select a life insurance savings plan that not only protects your loved ones but also serves as a disciplined, long-term wealth building tool to help you achieve your most important financial aspirations.