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7 reasons why you need a savings plan if you are a self-employed person

dateKnowledge Centre Team dateJanuary 18, 2021 views149 Views
7 reasons why you need a savings plan if you are a self-employed person

As each new day in life brings with it a ton of opportunities and possibilities, it also packs with itself a spate of unforeseen and unexpected mishaps. Irrespective of the preparations that you have set in place to launch yourself headlong into the topsy turvy journey of life, it always serves you well to have contingency plans up your sleeve.

This is precisely where savings plans come in extremely handy. No two days in life are the same, and the expense you incur in one is not certainly going to tally up with the rest of your days. Thus, a savings plan assumes foremost importance because it teaches financial discipline in your routine and virtually ensures your long-term goals and ambitions. More so, if you happen to be a self-employed individual.

Challenges of being self-employed

Being your manager can be thoroughly rewarding. However, the gig comes with its own set of financial considerations and concerns. Often, devising an efficient savings strategy proves to be quite a challenging task for a self-employed person. This is on account of multiple reasons. Firstly, when you’re self-employed, the inflow of cash can tend to be highly unregulated.

More often than not, you are held at the mercy of their whims, and subsequently, any financial management on their behalf reflects heavily on the punctuality of your paychecks. Furthermore, self-employed individuals do not require abiding by a traditional salary structure mandated by most corporate ecosystems. As a result, they tend to lose track of their expenses. Listed below, are a set of 7 reasons that shed light on the importance of a savings plan for a self-employed person, besides reflecting on the significance of a savings philosophy in general.

Allows you to set up an emergency fund

In an untimely disaster or accident, a savings plan effectively doubles up as your emergency fund and allows you to take care of all unforeseen expenses. On average, our day to day savings is only capable enough to tide us over for a few months. To that extent, most of us have to resort to borrowing to cater to even the mildest of emergencies, should it happen to raise its head at the wrong place and time. Hence, it becomes rather imperative to set up an emergency fund with a savings plan. It serves as a contingency and offers you several possibilities to multiply and invest that sum in a disciplined and systematic manner.

As a self-employed individual, should you ever happen to run into a disagreement with your client leading to subsequent contract termination, opting for a guaranteed savings plan and an emergency fund will help you effectively tide through this inconvenience. Consequently, it lends you stability until you can secure and start working on a new project altogether. Ideally, one’s emergency fund should be able to cover up for them for a period of 6 to 10 months.

Plan for a worry-free retirement

When you are self-employed, the chances are that you are most likely not entitled to a pension scheme and plan that most corporate and government officials generally are. In such a situation, having a savings plan in place serves as the only viable means of securing a worry-free retirement for yourself. While it is generally understood that there is no concept of a “retirement” when you are self-employed, everyone deserves a break from the hustle and bustle of every day of life post reaching a certain age.

It is a general rule of thumb that the sooner one starts saving for their retirement, the less they have to worry about their future. Besides stabilizing your future, individual special retirement accounts exist that even hold the potential of appreciating the value of your invested amount by helping you earn compounded interest upon your furnished sum. A savings plan helps facilitate these eventualities for you with absolute convenience. Consequently, you get the liberty of leading a life of retirement that is both debt and worry-free.

Get your place

Having a savings plan in-store gives you the necessary funds to save up for a downpayment on the house of your choice. Once you can afford a 20% down payment, you get to stay free of private mortgage insurance (PMI), besides getting to access the possibilities of receiving improved interests on a home loan. Additionally, these funds also serve the purpose of diminishing the amount that you need to borrow, making mortgage payments extraordinarily affordable and convenient for you in the process.

We live in a time and age where real estate valuation continues to shoot up with every passing day. Without proper planning and investment, bagging a fair deal for yourself can become quite an unassailable task. As a self-employed individual, having your place not only fulfils a basic necessity but also acts as a means for you to conduct and expand your business ventures. Moreover, the investment made on real estate is more often than not a one-time affair; the dividends you get to reap for all of the time to come.

Access various investment options

Most savings plans give you several options for investing your money in various financial instruments. These alternatives range from the typically safer fixed interest securities of corporate bonds, government securities, and money market instruments to the reasonably high-risk choices of equities.

As a result, you get the opportunity of increasing and multiplying your wealth without having to shift focus from your primary line of business. Moreover, getting into the habit of investment at an early stage of your professional career is considered a sound financial practice and one that stands to secure sizable returns for you in the longer run.

Helps you regulate taxes

In essence, savings plans are life insurance plans. Hence, they offer you the same spectrum of tax benefits offered by most life insurance plans out there. More noticeably, as per section 80C of the Income Tax Act, you get the option of availing an exemption amounting up to a sum of ₹1.5 lakhs towards your premium payments.

Additionally, death benefits and maturity benefits falling under the ambit of a savings plan are also eligible for tax exemption as per section 10D of the Indian Income Tax Act. All of these factors make savings plans the tax-saving instruments of choice for many.

Allows you to be flexible

No two individuals on the face of this planet are the same. Consequently, their ambitions, priorities, and life goals are radically different from one another as well. The best part about having a savings plan is that it caters to all such different perspectives and viewpoints and allows you to chalk out a savings plan that is best aligned with your needs and requirements.

As a result, every individual is accorded a great degree of flexibility to devise their own savings strategy and abide by it for the rest of their lives. As a self-employed individual, the importance of flexibility in your daily life and routine is, without a doubt, paramount.

Having a savings plan in place not only accommodates this particular requirement but also gives you access to a whole other set of personalized alternatives. Additionally, customized offers for funds and investment criteria and terms and payouts are also accorded to the plan holder. Moreover, depending on your capital needs change and risk appetite, you can always dabble around with your investments choice. At no point in time, are you required to make a definite call and uphold it religiously for the rest of your life?

Meet your goals by resolving irregular expenses

Individual savings plans are tailor-made to cater to the requirements of your friends and families. Hence, to identify the plan that best suits your needs and requirements, it is essential for you first to sort out your investment priorities and your ambitions and goals. Chalk out both your short-term and long-term goals so that you can benefit suitably from your savings plan.

Additionally, always be mindful of the specifics of the plan that you are opting for. This enables you to efficiently narrow down your risk appetite and finalize on an investment horizon of your choice. Vital factors such as the plan’s add-on riders, inherent flexibility, and unique features are to be considered while making these calls.

As a self-employed person, a savings plan poses a precious asset due to the many benefits it packs with itself. It helps them stay on top of unforeseen incidents and provides much-needed insurance to their family and other dependents. It is an essential tool that helps you achieve your life goals and certain things in the longer run.

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Frequently Asked Questions

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns if you invest in this savings plan. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

Who should invest in a Savings Plan?

If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income. Choose an income plan based on your financial circumstances to stay afloat.

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What is the difference between saving and investing?

Saving is the money that you keep aside for emergencies or for buying any big-ticket item. Investing means growing or multiplying the wealth that you have by buying savings plan, or any other assets. Buying a savings plan will help you in achieving your investment goals such as retirement, your child’s higher education or marriage, or for buying a new house.

Which savings plan is best for retirement?

The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement. Also, Guaranteed Income4Life is also another savings plan that you can consider for building your retirement corpus as it acts as a guaranteed income plan that will provide you maturity benefits to manage your post-retirement expenses.

Which savings plan is best for long-term goals?

Smart Goals Plan is a savings plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals. Canara HSBC Oriental Bank of Commerce Life Insurance offers a wide variety of saving plans that you can invest in as per your risk appetite and investment goal.

Which savings plan is suitable for girl child?

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child. Monthly Income Advantage Plans are also a good option if you are planning to invest in a savings plan for your girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having the best savings cum guaranteed income plan in your portfolio is extremely important. Savings plan ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a monthly income advantage plan?

A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding in a savings plan. Invest in an income plan as early as possible to build a significant corpus that will later help you in life. Ensure that you buy the best saving plan in India that can be aligned with your investment goals.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. The best saving plan offers a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner. Buy a monthly income advantage plan that will generate a steady source of income for you to take care of both long-term and short-term financial goals.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in an income plan, it always pays well to start early. The earlier you start investing in a savings plan, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested in the best saving scheme for a long time can give substantial returns due to compounding. Buy the best savings plan as soon as you start earning to achieve all your milestones on time.

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How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Buy the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment. Consider investing in a monthly income advantage plan to assist you in fulfilling your financial goals.

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How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits, which makes them a good investment choice for investors looking for income plans.

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