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Can a savings plan replace your income for your family?

dateKnowledge Centre Team dateJanuary 18, 2021 views200 Views
Can a savings plan replace your income for your family?

Remember the time we were little and used to get pocket money from our parents? What would we do? Initially, we spent all the money that we would get, in buying chocolates and other goodies. But as time passed, we started doing the smarter thing- We started saving up!

Even if the pocket money we got at that time was as less as Rs. 50, we would keep Rs. 20 aside and spend the rest. Slowly the money that we kept aside would accumulate to a substantial amount. And we could finally afford to buy that pretty doll, comic books, battery-operated car or that cricket set like we always wanted. We have always been taught to save up!

A savings plan is any financial scheme that will help you save money or grow your finances. The money you save can be used for a considerable expense in the future such as buying a new house, funding a child's education, marriage or a medical emergency in the family.

What must you consider while investing in savings plans?

It is essential to assess all the available options and finalize the best-suited to your goals and requirements. You can speak to an insurance expert to help you out in this. Buying a savings plan is a significant investment and needs proper planning and evaluation.

Here are some factors you must take into consideration while buying a savings plan:

Start early

Consider this example: If you are a 20-year old individual and your financial goal is to accumulate Rs. Five Crore by the time you have reached retirement age (60 years), you have to save Rs 4,207 per month for the next 40 years from your income, assuming that the return rate is 12%. If you delay 25, you will have to save Rs—7,698 (almost double the amount) for the next 35 years.

Hence If you start saving early, your money gets more time to grow exponentially. You also get a chance to explore more savings options as you can afford to take risks.

Risk analysis

It is essential to do a risk analysis before you invest in a savings plan. Various factors such as age, income, financial goals etc. play an essential role in determining the number of risks you can take. Usually, people in their 20s and 30s can opt for aggressive plans and go for a more risk plan. Needless to say, as your age increases due to the increase in responsibilities and financial requirements, it is better to go for a more conservative option that has a money-back guarantee, although it is low on returns. Again, this is not a hard and fast rule and may vary from person to person.

Investment tenure

Depending on your financial goals, you must choose a tenure for your savings plan. Long-term plans always guarantee you the best returns, but it is also essential to consider any other requirements you might have.

Features of the plan

Every savings plan has different features. For example; Financial cover for your entire life, fixed cover ranging from 5 to 35 years, allowing partial withdrawals, better tax-saving features, market performance bonus, accidental disability, critical illness coverage, demise etc. It would be best to look for a plan that gives you maximum cover and good returns.

Flexibility

A long term guaranteed savings plan can give you the best returns and financial cover. But we cannot predict the future. What if some emergency comes up and you require a significant amount of the corpus you have put in your savings? The plan must be flexible enough to allow you to take care of unexpected short-term financial needs, such as a medical emergency.

Final goals

When you choose a savings scheme, your final financial goals must be clear. You can have objectives such as creating a retirement fund, buying a new property, saving up for a child's education or marriage etc.

Tax benefits

Many savings schemes and investment plans come with additional tax benefits. They help you reduce your tax liabilities under sections 80C and 80D of the Income Tax Act. In addition to this, any payouts that you receive from your insurance policy are entirely tax-free (This is only if your premium does not exceed 10% of your Sum Assured, annually).

Do not forget inflation.

While deciding to invest in a savings plan, it is crucial to consider inflation's effect on your savings. Simply put, inflation is the price rise. It means that things will become expensive as the years pass, and the number of things you can buy with Rs. 1,00,000 today will be much less after 30 years.

Who should buy a savings plan?

Savings plans help accumulate your savings and help you towards a bigger goal. They are ideal for you if:

  • You are a young investor
  • You are nearing retirement
  • You have a steady income
  • It would help if you accumulated wealth for the future
  • You want comprehensive coverage

Advantages of savings plans

More and more people are realizing the importance of life insurance and opting for various schemes to provide them financial cover and help accumulate wealth. Reports suggest that in 2019, the insurance industry's total investments in India were over 38 trillion rupees compared to approximately 34 trillion rupee investments in 2018.

Investing in savings plans has the following advantages:

  • Hassle-free
  • Long-term wealth accumulation
  • Tax-saving
  • Guaranteed returns to support your financial goals
  • Financial cover for the whole family
  • Tax-saving benefits

Types of savings plans available in India

Endowment plans

An endowment plan has dual benefits. It helps cover the insured's life and helps the policyholder save regularly over a specific period. The amount received on maturity is a lump sum amount of money that can be used for retirement, medical expenses or a child's education. They are of two types- with profit and without profit plans.

People who have a regular income currently, but those who need a lump sum amount after some years are best benefitted by taking an endowment policy. An endowment plan is almost risk-free and offers a steady amount of money on a fixed date as long as the premium is paid.

Money-back plans

Money-back plans are very similar to endowment plans. The only difference is that you get the sum-assured at period intervals if you take a money-back plan. The advantage of taking a money-back plan is that you have the flexibility to utilize your savings at regular intervals.

A money-back plan is one of the best-guaranteed savings plans, as it assures long-term investment benefits, gives you financial cover and offers good tax benefits.

Unit-linked insurance plans (ULIPs)

A ULIP plan is much more transparent as compared to other insurance plans. These are market-linked savings plans and allow you to modify the sum assured during the policy term. They offer tax benefits at the time of investment as well as maturity. ULIPs are structured similar to that of mutual funds. They pool investments with those from other investors and are managed with a specific investment objective.

ULIPs can be classified into single/regular premium plans, guarantee/non-guaranteed plans, life stage-based/non-life stage-based plans.

In a ULIP insurance plan, a portion of your premium is paid to life insurance while the remaining is used to invest in your choice funds. ULIP plans are best if you want to invest for a more extended period.

Can a savings plan replace your income?

If the biggest worry you have is: "Who will look after my family when I am gone?", you are not alone! This is especially true if you are the sole earning member of the family. Losing a loved one affects emotional stability, and it is hard to get over the loss. To add to it, worrying about day-to-day expenses, children's education, marriage, paying off loans etc. can put an additional emotional burden on the family.

In such situations, a good savings scheme can create a financial cushion for the family. It can help the family sustain during trying times. However, just a guaranteed savings plan alone cannot replace your income. Inflation is one of the primary reasons for this. As things will keep getting costlier, the buying capacity will decrease significantly.

Hence it is essential to have a savings plan cover along with other investment plans for complete security. It is best to have a good portfolio of investments and savings plans to ensure that your family is well taken care of even if you are not around.

We can help you find the best insurance solutions.

A reputed and credible insurance services provider can help you plan your finances. They can give you the right guidance about growing money by investing it in the best way possible. Please speak to our team of expert insurance advisors to get solutions for all your insurance-related queries.

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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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