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What do Saving Plans Do Not Cover?

dateKnowledge Centre Team dateJanuary 12, 2021 views130 Views
What do Saving Plans Do Not Cover?

Uncertainties are inevitable in life. However, you can stay prepared to face them with a savings plan. A savings plan is a life insurance policy that prepares you to meet unexpected future events, whether they concern you or your loved ones. A guaranteed savings plan enables you to make disciplined and periodic savings to achieve the long-term and short-term financial objectives of life. Furthermore, a guaranteed savings plan also provides additional tax benefits for their life insurance components, terminal illness, and death benefits, among many others.

Need for having a Saving Plan

Proper financial planning is the key to fulfilling your dreams and aspirations. Access to the large corpus in the future by dint of systematic saving and investment done at the time. Today's need to live a good and happy life has outgrown, and stashing money under the bed won't compel the needs. A savings plan is the need of the hour because:

  • Regular Savings - by paying the premium account's regular payment to keep your savings plan active, a habit of saving is developed.
  • Guaranteed Returns- guaranteed returns are assured in a guaranteed savings plan which sets it apart from other investment options where no guarantee is there.
  • Bonus- Saving plans are long-term-investment, insurance companies offer various bonus options as an incentive for providing long-term stable funds.
  • Tax Benefits- Under Section 80C of the Income Tax Act, 1961, the premium paid for saving schemes qualify for a tax deduction. These tax benefits are provided under a guaranteed savings plan.
  • Loan- It is easy to avail of secured loans against the policy as the investment and fund accumulate under the savings scheme.
  • Life Covers- You receive a life cover with a savings plan that may not be as high as term insurance, but it still provides an additional layer of financial security to the family.
  • Unforeseen spending- You never know when an urgent situation will take place. An emergency doesn't come beforehand. You never know when an emergency can put a dent in your finances. A vehicle accident, a severe illness, emergencies at home like fire, or any other calamity can necessitate considerable out-of-pocket costs. These uncertainties of life can damage even the budget of most financially disciplined people. Nevertheless, a saving account can almost always cover the gaps and help you out of debt.
  • Leveraging Chances- A proper savings plan enables you to take advantage of possible profitable monetary opportunities. Not having sufficient money to invest may cost you excellent business opportunities, and these opportunities don't come beforehand, so preparing well in advance can benefit you.
  • Extra Security: if the bank suddenly goes bankrupt and closes, the government will substitute your funds up to a certain amount. More or less, your money is secured in a saving account. And if you invest in an interest-bearing saving account, you can also earn some interest benefits.
  • Make Money Work for You- Where everyone is working for money, make money work for you if you can open a high-interest saving account. Your money will be making more money by being just there. The more investment you make on your savings, the more interest you are likely to get.
  • Emergency Funding- One of the most important and necessary reasons to have a savings account is that you can access money during emergencies like any natural disaster when your pocket goes out of cash.
  • Retirement- A saving fund can be an essential resource to boost your quality of life after retirement and a fair and guaranteed savings plan can enable individuals to retire early.
  • Housing & Education- Enough saving funds can fulfil your small and big necessities of suitable housing. It can also help families in the long-term by providing funds for college educations and private schools.

What is and isn't covered?

Saving plans is a kind life insurance plan that provides financial protection to the family in cases like sudden death or the permanent disability of the family's central earning member. Take a look at what does is covered and what is excluded:

Covered

Along with the standard coverage, which varies from plan to plan, you can further enhance the protection with the help of riders such as:

  • Accidental death benefit rider: if the insured happens to die in an accident, the nominee gets this financial benefit along with the sum assured.
  • Accidental Total and permanent disability rider: Insured gets financial assistance if they cannot earn due to some disability mentioned in the policy.
  • Critical illness rider: major critical ailments like cancer, heart attack are covered under this rider.
  • Hospital cash rider: in case of any hospitalization, a fixed amount is paid to meet non-medical items' expenses.
  • Waiver of premium rider: the company waives off the remaining premium payment on the insured's sudden demise or total permanent disability if the insured has this rider.

Not covered

Along with all the riders, the insured must check what the policy does not cover. Here are some typical claims that are excluded by the insurance companies-

  • Almost all policies contain a clause relating to death related to the policyholder's participation in a crime. If the beneficiary claims for the amount, but it has arisen due to any unlawful activity, for instance, if someone robs a bank and gets killed during a robbery, their life insurance coverage would not pay out their beneficiary.
  • Almost all policies do not cover any claims if the policyholder is involved in self-inflicted surgery or deliberate self-harm.
  • Suppose the policyholder dies in certain activities like paragliding, water-sports activities, rock-climbing, etc. In that case, the beneficiary won't receive the death benefit.
  • Some insurance companies deny the claim if it is a human-made disaster or damage caused due to negligence on human beings.
  • Some policies don't cover the policyholder's loss of life due to HIV and STDs as a rider, and thus no benefits will be given to the beneficiary.
  • If the policyholder dies within the contestability period - a time after the policy goes into effect when the insurer can review the application for fraud- and discover that the policyholder has misrepresented or misguided the application. Then, the beneficiary's claim can get denied or sometimes the money may reduce to the amount of money owned in premiums.
  • The policy ends after a set number of years outlined in the policy's term, and once it expires, the coverage will no longer stay in effect.

Advantages of a Saving Account

A saving account is your future finance helper and a solution to most of the problems related to money that are inevitable for making low money. Here are some advantages of a saving account that might resolve all your doubts and confusions about investing in it-

  • Start with a little - there's often no minimum balance required to open a saving account. You are often free to deposit any size of money as you like.
  • An Automatic Saving Plan- an automatic savings plan automatically transfers a small portion of your paycheck into your savings account when you get paid.
  • Joint Accounts- you and your partner can save together for the future with joint accounts.
  • Easy Access- you can easily access your money in saving accounts through ATM cards, mobile apps, online banking, and at multiple bank branches opened by the bank.
  • Earn interest- financial institutions pay interest in your saving account balance, and many accounts offer compound interest. Make your money to earn more money.
  • Free to Open- Almost all saving accounts are free to open; they cost zero rupees and even don't have a monthly fee.
  • No lock-in period- you are free to switch saving accounts as often as you like.

Disadvantages of a Saving Account

It is essential to learn the disadvantages of savings accounts for better consultancy and a convenient policy operation.

  • Not fixed Rates- one major key disadvantage is that saving account interest rates are variable. It means that the financial institutes can set and change interest rates as per their wish.
  • Undeniable temptation to spend- Saving accounts are accessible anytime. While it's nice to have the freedom and generate that urge to spend money, if you're tempted to dip into your savings, then a time deposit can be the solution.
  • Six-withdrawal limit- saving accounts are limited to six withdrawals per month. If you withdraw more than six times, a penalty fee will be charged per transaction. However, it varies from bank to bank.

A better closeup to what a savings plan does and does not cover may explain how the whole process is done. When and on what conditions the beneficiary can avail of the money. Knowing all such essential details is crucial to avoid all the hectic and chaotic situations that may arise due to a lack of knowledge, which mostly leads to false claims.

A guaranteed savings plan plays an extensive role in maintaining life expectancy when you don't have money in your hands. One must know how a savings plan works, what it does not cover, and the benefits one can receive from it.

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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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