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Ways to save money for salaried professionals

dateKnowledge Centre Team dateFebruary 22, 2021 views168 Views
Ways to save money for salaried professionals

The approach of a salaried individual to save money is different from that of a self-employed or businessman because salaried professionals have fixed monthly income, unlike the latter. Due to this, they have to manage savings and investment with their expenditure within a stipulated income. The most effective way to save money is to invest money in a money-saving plan.

Ways a salaried professional can save money

Salaried individuals need to consider time, risk, income growth, and return expectations as per their income while determining the best saving plan in India for them. One of the biggest challenges for these people is to control spending. The more control on spending, the more money can be saved that will eventually benefit the individual in the future.

Here are some of the ways a salaried professional can save money:

Getting a health insurance policy -

Many people wrongly take any term insurance policy such as a health insurance policy as a money waster, but the reality is that the policy can benefit a salaried professional in saving money if the policy is chosen carefully. It is evident that diseases and accidents come without an invitation, and nowadays, people are becoming more vulnerable to diseases whose treatment leaves with a huge medical bill.

Therefore, it is better to spend some money in paying premiums of the health insurance policy than paying large amounts of money in the treatment of unexpected hospitalization. The current expenditure of the average Indian working class on healthcare is Rs. 1500 per month; some money can be saved by investing in the health insurance policy.

Current Expenditure Option Available Option Available
Rs. 1500 per month spends on healthcare Rs. 1000 per month on health insurance Rs. 500 per month

There are several other ways by which a salaried individual can save money such as, cutting down on energy bills, reducing entertainment expenses, prudent grocery shopping, smart online shopping, cutting down on transportation and telephone bills, etc. However, the best way to save money by not compromising with the basic needs is to invest in a money-saving plan. It will not only save money, but some plans can benefit you with their returns and tax benefits also.

Best money-saving plan in India for salaried professionals

Choosing the best money-saving plan is not a light task; one needs to do a proper analysis of each plan’s risk, returns, etc., before finalizing the plan. A salaried professional is most likely to choose the one that provides tax benefits too.

There are many options available in the market, and here are some of the best money-saving plans in India that a salaried professional can opt for:

1. ULIPS

Unit linked Insurance Plans (ULIPS) is a type of life insurance plan that provides safety of insurance protection with the opportunity of wealth generation. In this plan, a part of the investment goes towards providing life cover, and the rest is invested in a fund that invests in stock or bonds that eventually provides benefit. It is considered the easiest and best investment plan in India for a person to enter the stock market with the additional benefits of life cover.

Benefits of investing in ULIPs

  • Life cover

    ULIPs will provide the benefit of a life cover coupled with investment. The life cover will benefit the family of the taxpayer in case of their untimely death.

  • Income tax benefits

    For a salaried individual who seeks life cover with additional tax benefits, ULIPs can be the best choice. Under Section 80C, the premium paid towards a ULIP is eligible for a tax deduction. Furthermore, the returns out of the policy on maturity are exempt from income tax under Section 10(10D) of the Income-tax Act.

  • Long term goal benefits

    ULIP is a good investment option to save money to finance long-term goals like buying a house, a new car, marriage, etc. The best returns will be generated if the policy is kept for a longer time.

  • The flexibility of a portfolio switch

    ULIPs are usually designed in a way that allows the policyholder to switch the portfolio between debt and equity-based on risk and knowledge of the performance of the market.

2. Endowment plans

An endowment plan is a regular money-saving plan that helps build a corpus and give guaranteed maturity benefits along with bonuses. The endowment policy is a kind of insurance plan designed to provide life coverage protection and the chance to grow wealth through systematic savings. It is one of the best investment cum money saving options available to people looking for insurance cover as well as investment and savings plans in India.

Benefits of endowment plans

  • Better returns

    One of the most important policy benefits is that it offers better returns on investment than fixed deposits or simple life insurance policies.

  • Tax benefits

    This plan is a good tax-saving option as they are tax-free. Under Income Tax Act, Section 80C, endowment plans have some tax benefits on the annual premium, and under Section 10(10D), the maturity claims of endowment plans are completely tax-free.

  • Accidental riders

    Endowment plans provide the option to policyholders to add accidental riders to further enhance the cover by paying a marginal premium.

  • Short-period premiums

    These plans are ideal if one wants to pay a premium for a short-period and wants to benefit from the plan over the policy term.

  • Liquidity

    These plans are liquid. In case the insurance carrier survives the policy term then, the sum assured amount and other bonuses accumulated during the term period are also paid further. And if the policyholder dies during the policy term, then the death benefits are paid to the nominees; the benefits include the full sum assured amount and additional vested bonus.

3. Money-back plans

Money-back plans are very popular insurance policies as they offer the dual benefit of insurance and redemption of money at regular intervals. These plans are mostly opted by the individuals who require money at certain intervals of life to meet short-term as well as long-term financial requirements.

In this plan, a portion of the sum assured is paid back at regular intervals. If the policyholder survives the policy term, then the policyholder will receive the balance sum assured in the best saving plan in India. And in case if the policyholder dies during the policy term, then the beneficiary or the nominees will get the full sum assured irrespective of the payouts already made.

Benefits of money-back plans

  • Protected savings

    The returns in money back plans are guaranteed, and thus savings in this plan remains safe as the premiums paid are not linked with the ups and downs of capital markets that offer uncertain returns.

  • Life insurance

    This money-saving plan also provides life insurance cover. In case of death of the insurance carrier, the nominees get the full sum assured amount.

  • Tax savings benefits

    Under Section 80C, all life insurance premiums under the money-back policy are eligible for tax deduction up to the specified limit, as long as the premium is less than 10% of the sum assured. However, the maturity amount is exempted from tax deduction at source as long as the sum assured is more than five times the premium paid for the policy.

  • Secured investment

    Money-back plans are a good way to make an ideal investment. Further, money back plans help to guard against the risks to a certain king of funds.

4. Monthly income plan

A monthly income plan (MIP) is a type of mutual fund strategy that generates stable income through dividend and interest cash flow. The plan aims to provide a steady stream of income that is suitable to retired persons or senior citizens who do not have other substantial sources of monthly income. However, the monthly income plan is prone to market risks, and the investor can expect a seedy stream of income when the market is strong but could face downstream bear markets.

5. PPF/EPF

PPF (Public Provident Fund) is a central government scheme meant for both salaried and self-employed individuals. It aims at offering old-age financial security to self-employed individuals and workers from unorganized sectors.

PDF (Employee Provident Fund) is a scheme designed exclusively for salaried professionals. Under this scheme, the employee and employer contribute 12% (or the minimum of Rs. 780) of the salary amount every month. Both PPF and EPF are eligible for tax exemption under Section 80C. This money-saving plan is a must-have option for salaried professionals of the private sector.

A salaried professional needs to save money to achieve short-term and long-term goals. Keeping the risks in mind, one should determine the best money saving plan as per the requirement. Many plans offer dual benefits of life coverage and wealth generation as well that are the best choices for salaried individuals.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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