Life Insurance Savings Plan: Life insurance is widely understood as the policy that covers the life of policy owner to give financial security to his/her loved ones. There is much more to life insurance than the coverage of death. It ensures tax savings of working individuals under various slabs. Life insurance also enables the individuals to save for their retirement or any other goal with a certain sum which is assured to them on its maturity.
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Given so many benefits, let us understand in detail what kind of life insurance plans are popular and different types of savings that can be done with life insurance.
Types of life insurance savings plan:
There are mainly 2 types of life insurance plans:
Term life insurance:
In this type of life insurance, the policyholder has to pay the premium for a fixed period of time. After the time period of the policy gets over, the policyholder can withdraw the money as the growth in policy usually stops on its expiry date. Such term insurance plans mostly have higher rates of interest as they are meant for a limited period of time. People usually buy this type of life insurance plans keeping following things in mind:
– Higher rates of return
– A fixed goal such as buying of the house, education for children, the marriage of children etc.
– Savings for retirement
– Coverage of death and giving monthly fixed instalments of benefits to their loved ones.
There can be various other reasons including the few above for buying the term life insurance policy.
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Whole life insurance policy:
This type of life insurance policy guarantees the whole life coverage of the policyholder. It means the premium is paid for the given period of time but the benefits are entitled to the beneficiaries on the death of the policyholder. Whole life insurance policies do not have interest rates as high as the term insurance plan but they ascertain higher amounts due to their longevity.
Such policies are usually bought for the following reasons:
– Covering the life until death
– Borrowing loan on the policy at any point in the lifetime
– Covering all the medical bills while being alive
– Meeting the final expenses of the policyholder such as burial expenses as well as any pending debts or medical expenses
– Allowing financial security to the loved ones on accidental death at any point in time
– Saving of yearly income tax towards annual payment of the policy premiums
Keeping the above points in mind, people increasingly invest in these insurance plans.
How can we ensure maximum savings from life insurance policy?
As stated above there are various ways in which life insurance policy can be helpful in saving for future. Therefore some people even consider buying life insurance policy for a savings plan. But to maximise the benefits of savings through life insurance policy, one should keep the following points in mind:
– Payback the borrowed money in time:
People can borrow loan on their life insurance savings plan policy. A few policies allow the policyholder to withdraw a given sum of money from the policy for a fixed period of time at a minimum interest rate. However, you need to pay it back in time. Make sure you do not incur any penalties on this borrowed money by making the timely repayments.
– Cover 2-3 types of insurance in your policy:
There are insurance plans with specific interest such as medical insurance plan, child insurance, and life insurance. Although one can buy separate plans for all these coverage points it will be better to buy an umbrella plan that includes all these points under one. It will save on the separate costs such as processing fee, handling charges etc that will be one-time inclusion in one policy.
