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7 Smart Ways to Spend your Annual Bonus Wisely

dateKnowledge Centre Team dateJune 15 2021 views182 Views
Annual Bonus Spending | Tips for Salaried Professionals | Savings Plan

Along with the happiness of getting the annual bonus, which we all wait for eagerly, comes the worry—the worry on how to spend it wisely. While most people advise you to save that income, your friends and colleagues might want you to end up on a trip with them. While your parents may suggest you to buy a life insurance plan or invest it in SIPs. Isn't it just fair to spend it, though? It's extra income anyways. Here is where most of us tend to loosen up and end up making a huge mistake. Why not find a way to let your fun and savings mutually co-exist? Here are 7 smart ways to spend your annual bonus wisely:

1. Pay your credit card and personal debts

Most of us might have an amount in debt that we might not have paid off yet. Be it that three percent debt from the credit card or an amount of five hundred rupees that you owe your friend from that lunch date. This is the first thing that you must consider to close on. On average, the interest rate per annum for a credit card is over forty-one percent.

2. Purchasing an STP

Investing a large sum of money into an STP might be the next thing that you can consider. This scheme comes under the sector of equity funds.

6 Saving and Investment Schemes to Invest in

a. Monthly investment plans

Monthly investment plan helps you invest per month. The usual interest rate offered by banks is seven point five to nine percent. Generally, banks issue this percentage to a saving of up to fifteen lakhs for five years. The critical thing to note here is that this plan isn't exempted from any taxes. This amount is considered as your income.

Learn about a monthly income scheme: Overview, features and benefits

b. PPF, a.k.a. Public Provident Fund

This is the safest option, with a lock-in period of fifteen years. An individual needs to add a minimum of five hundred per month to a maximum of one lakh in a year to this fund. It is capped at a maximum of fifteen lakh. The interest rate is eight point eight percent. Not only is this plan exempted from taxes, but as a bonus, the interest is also calculated compounded every year.

c. National Saving Certificate

A self-employed person can easily buy this certificate in one instance and quickly deposit money as and when he or she has an additional income. The interest percent is as high as eight-point eight to eight-point nine, depending on the tenure.

d. Mutual Funds

Non-Banking Financial Companies offer a variety of funds that helps investors to fulfil their needs. You can take money out after the completion of 3 years. The redemption amount will be exempted from taxes.

e. Long-term investment stock accounts

A long-term investment stock accounts for an organization that plans to stay on for a minimum of a year like stocks, bonds, land, and cash. Long term investors are typically willing to require additional risk for higher rewards. These are different from short-term investments; that area unit is meant to be oversubscribed for a year.

f. Infrastructure bonds

Infrastructure bonds are unit borrowings to be endowed in government-funded infrastructure that comes inside a rustic. They're issued by governments or government authorized Infrastructure firms or Non- Banking financial firms.

3. Build emergency funds - Your best friend

Use a percent of your bonus to form or enhance your emergency fund. An associate emergency fund isn't meant to offer you excellent returns; however, it's a fund that improves your risk appetite. This can allow you to take more considerable risks in your business and your career. There's no fast rule for the quantum of the emergency fund; however, you ought to ideally have half-dozen months of expenses coated.

4. Buy the best life insurance policy

Not having the best life insurance plan in your investment portfolio is fateful. In contrast to investments, luck plays an even more prominent role here, and it does not provide too many probabilities to urge it right. Other than that, as you know life is unpredictable, hence, having a life cover is beneficial for your loved ones. If you are the sole earning member of your family, you need to buy the best life insurance plan for your safety as well as for the financial safety of your dependants. Also, you can invest in savings plan. They are a combination of life insurance plan and saving plan. With Guaranteed Income4Life from Canara HSBC Oriental Bank of Commerce Life Insurance, you will get guaranteed benefits to secure your financial tomorrow.

Learn more about Guaranteed Income4Life.

5. Allocate a part of it to your retirement and your child's future

You must be sure enough to design out your retirement and your child's future through numerous investment schemes. The bonus could be a reasonable chance to spice up your corpus creation. For instance, you'll be targeting to form a corpus of fifty lakhs for your child's education ten years from now.

However, if you add a booster from your bonus, you'll either have the text corpus or check up on reducing your monthly allocation. These square measure belongings you have to be compelled to target. Start planning for your retirement as early as possible to build enough to support your post-retirement lifestyle. The sooner you start, the better it is.

Understand how saving at an early stage can help you with retirement?

6. Prepaying home equity credit

Using bonuses to pay the house loan is pretty common. However, there's no need to be compelled to go overboard.

One should think about the chance value of prepaying the house loan. Therefore if some investment opportunities will provide a higher return rate than the loan rate in the future, then there's a case for investing the bonus cash than prepaying the house loan.

The money endowed is towards mid-and long money goals (like children's education, retirement, etc.). However, the choice will vary from person to person.

7. And in the end, have fun

Remember, it is a bonus. Therefore you ought to pay for it too and not feel guilty regarding it. Take a little vacation or create that purchase you have been procrastinating. However, do not go overboard and detain mind all the opposite points mentioned earlier.

An investment in yourself can never go wrong. You can invest in taking up the gym or the dance class membership. Or, you can take up courses which will help you enhance your skills. You can even invest in a good pair of blazers or shoes.

After everything that we have discussed, remember, it is your bonus, and you have earned it. Spending your bonus wisely can help you secure a stable financial future even in the time of crisis. No one is asking you to miss out on the fun. But having fun at the cost of your financial well-being is a big no. Therefore, plan a strategy before you start spending the bonus you have received.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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