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How Guaranteed Insurance Plans make for an Attractive Savings Proposition?

dateKnowledge Centre Team dateSeptember 06, 2021 views234 Views
Guaranteed Savings Plan | Best Savings Plan Online

When you hear the word guarantee, the first thought that crosses your mind is the last appliance that you purchased from a branded retail store and the friendly neighbourhood garment store owner who “guarantees” the clothes that they sell.

Large consumer durable companies and computer manufacturers issue guarantees/warranties when selling goods. You trust the guarantee card but more than that you trust the legacy of the brand and the trust reposed in them. When trusted guarantees are such a rarity when you buy appliances worth a few thousand of rupees, how do you trust guarantees in the financial world? What is a guaranteed savings plan and how does it work?

How Does Life Insurance Plans Guarantee Return?

Life Insurance investments are managed by highly competent fund managers who have extensive experience managing financial assets. Except for ULIP plans, your money is spread across highly rated debt securities and investments. So, if you are looking for a long-term safe investment life insurance plans are the best bet.

However, if you want aggressive growth you can look at the fund options available under ULIP plans. Guarantees in insurance investments and ergo, guaranteed investment plans, are possible because money invested in G-Sec are backed by the sovereignty of the Indian Government.

The IRDAI Act also mandates investments only in graded securities rated at least AA (S&P) or “very strong” by an independent rating agency.

When Guaranteed Plans are the Best Solution?

1. Wealth Preservation

If you have already created wealth by investing in guaranteed return products such as Invest 4G, you may either opt to systematically move money from equity funds to debt funds within Invest 4G or reinvest the proceeds to a conservative plan such as Guaranteed Income4Life if you are over 40 then.

You can choose to receive the money in a stream of pay outs that can be used for some planned life goals. For example, paying an annual tuition fee for your university going son/daughter.

2. Goal Protection

You dreamt of providing quality education for your child. You are contemplating buying a life insurance policy to financially safeguard your family in this case. But a thought keeps crossing your mind. Will the Sum Assured in your life insurance policy be sufficient for your family to sustain plus manage costs of quality education?

The Guaranteed Savings Plan with premium protection will certainly give you that much-needed assurance. This plan gives Sum Assured to your beneficial nominee on your demise + the company pays future premiums until the end of the policy period. The nominee then gets the Guaranteed Sum Assured + Guaranteed Yearly and Loyalty Additions.

3. Best Investment for Entrepreneurs

The biggest challenge that entrepreneurs face is the uncertainty and fluctuation in income. Any small hiccup in the market can prove fatal to fledgling start-ups. This does not imply that entrepreneurs can not or should not save. In fact, they must be stricter when it comes to investments because income forecasting itself is a challenge, unlike salaried employees.

The guaranteed income plans can be commenced by either investing a one-time lump sum amount or as premiums only for a limited period. Once done, the investor can sit back and watch their investment work harder than them.

4. Most Tax-Efficient Way of Wealth Transfer

Investments into insurance policies are deductible under section 80C of the Indian Income Tax Act and the maturity amount is exempt from tax under section 10(10D). If you invest Rs. 1 lakh each year for 10 years, you will save a neat Rs. 2 lakhs in taxes presuming you fall in the 20% slab.

Let’s say the maturity amount @9% per annum comes to approximately Rs. 17 lakhs, you will save another Rs. 3.4 lakhs on tax. In total, you end up saving Rs. 5.4 lakhs which is more than 50% of your total investment.

Maximise Benefits of Savings Plans

Guaranteed Savings Plans from life insurers including Canara HSBC Oriental Bank of Commerce Life Insurance have benefits and features which support the following investment modes:

a) Invest for a long term, ideally 10 - 30 years
b) Invest regularly with timely premium payments (preferably monthly)

Guaranteed plans offer bonuses and loyalty additions depending on the investment term of the policy. The longer you stay invested the more you can expect to add through bonuses.

Also, since you need to stay invested longer, it’s better to start early, so that you can give your investment as much time as possible.

Protect Your Goals

Another aspect you may want to consider while investing in the guaranteed plans is whether you need to protect your goal from your early demise.

For example, you would want to protect goals like your child’s higher education fund, or marriage from your early demise. Guaranteed plans offer this protection such that your child will receive the intended sum at maturity, even after your demise before completing the investment.

Guaranteed Saving Plans = Long-Term Investment Safety

Guaranteed insurance plans are safe instruments operating as per IRDAI guidelines. They are ideal to preserve wealth and are also a right fit for risk-averse investors. A life insurance plan with guaranteed returns is a truly wholesome solution because it gives you a life cover and a guaranteed return on investment. In case of unfortunate demise, your beneficial nominee gets a Sum Assured on demise + the guaranteed fund value on maturity. This is a true guarantee that the insurer cares for you during your lifetime and also thereafter.

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