5 reasons guaranteed insurance plans make for an attractive savings proposition

Unlike stocks and related investments, returns from guaranteed savings plans are not subject to market volatility which means you are entitled to fixed guarantees. While savings instruments such as Bank FDs, National Savings Certificate and Public Provident Fund (PPF) also offer guaranteed returns, the return could change with changing interest rates.

Some of these instruments also come with limitations such as taxation on returns and cap on the maximum investment amount. Within the category, products from different insurers offer varied returns, depending on the premium amount, premium payment term and maturity payout structure.

Insurers, over the years, have made their guaranteed products more innovative with the option to customize the payout structure in line with the customer’s financial needs across various life stages. The payout structure varies from one plan to another. While some plans offer a regular flow of income at predetermined intervals, others make a lump sum payout at the time of maturity. Based on the nature of your goals, you may either choose to avail the complete maturity benefit at one go when the policy matures or opt for a plan that pays the benefit amount as regular income over a period and a lump sum at the time of maturity. Plans such as the Exide Life Guaranteed Wealth Plus which offer both these payout options, require customers to pick the payout structure at the time of inception of the policy.

Further, most guaranteed savings plans offer multiple policy term options. You can choose a tenure that suits you best, according to your preferences and requirements. For instance, if you foresee a big spend such as child’s education or retirement in the next 12-15 years, you can opt for a policy that matures after 12 years from the date of inception or offers regular income during your golden years. Adequate planning will help you meet your goals comfortably.

One of the biggest merits of guaranteed savings plans is the fact that they ensure the financial security of your loved ones. In addition to offering guaranteed returns, they offer a life cover as well. In the event of the life assured’s death, the nominees are paid a pre-fixed sum assured which can bridge the gap in cash flows and secure their financial future. Further, a host of guaranteed savings products today offer the choice of opting for riders such as additional term insurance and critical illness plan to enhance protection. Though riders come at a small added cost, they help in enhancing overall protection levels through higher coverage.

Unlike investment avenues such as mutual funds (non ELSS) and direct stock investing, these products give the advantage of saving taxes at the time of paying premiums as well as while availing the maturity benefit. Premiums paid towards insurance policies are eligible for tax deduction under Section 80C of the Income Tax Act. Additionally, guaranteed savings insurance plans such as the Exide Life Guaranteed Wealth Plus also offer long-term tax-free returns under Section 10(10D) of the Income Tax Act.

We live in a world full of uncertainties and products that demand long-term payment commitments may not suit everyone. Guaranteed savings plans come with a limited premium payment tenure which make them an attractive savings proposition. Premium payments for a short period can help reap high long-term returns.

Before you zero down on the product, it’s advisable to read the fine print and understand the terms and conditions thoroughly. This will help you plan your finances efficiently.