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What Are Savings Plans And How Do They Work?

A savings policy or saving plan is a financial product that helps fulfil the twin goals of wealth creation and life insurance. In a savings insurance plan, buyers get the dual advantages of making goal-oriented savings and securing their loved ones in times of uncertainty.
 

Saving investment plans are of various categories and often help buyers tick off many life milestones like education, higher education, marriage, home purchase, travel, and so on. It also comes in handy in clearing debts and taking care of financial emergencies like health scares, loss of employment, and so on.
 

Before saving in an insurance savings plan, it is crucial to understand the types of savings plans in India, their benefits, and how each one works.
 

 

What are the Types of Savings Plans, and How Do They Work?


A savings policy works on a simple principle. First, you pay a specified premium to the insurer offering the savings investment plan. The money you give gets invested in non-market linked instruments and accumulates returns at a pre-specified interest rate.
 

The initial invested money grows and multiplies over a period of years. Once the period passes, you start receiving the accrued income at regular intervals during the income payout period, in a lump sum at the end of the tenure, or a combination of both, monthly payouts and a lump sum.
 

  • Monthly savings plan

    A monthly savings plan is one of the most popular types of savings plans. Under this plan, you receive guaranteed1 income every month after a specific period of premium payments. You receive the monthly income during the income period or maturity and can use it for your monthly needs. You also get life insurance coverage so that your family members receive financial support on your demise.

  • A guaranteed1 return savings plan

    In a guaranteed1 return savings plan, you get guaranteed1 and assured returns during major life stages or milestones. The rest you get at the maturity of the savings plan while also getting a life insurance cover for unforeseen death. A guaranteed1 return plan has liquidity which means you can encash your money from time to time – something which many investors prefer.

  • Money-back savings plan

    In a money-back savings plan, you receive the returns generated partially at regular intervals during the subsistence of the savings policy instead of waiting for the maturity period to arrive. The remaining sum assured is given at the expiry of the savings plan. Money-back plans help you fulfil various financial commitments every 2-5 years.

  • Endowment savings plan

    An endowment savings plan is like any other savings plan. It pays a maturity benefit at the end of the savings plan, , and offers a life insurance cover. However, most endowment plans are profit and non-profit saving plans. In profit endowment policies, you receive any company-earned profits, along with the returns, and in non-profit policies, you only get the accrued returns.

  • Unit-linked savings investment plan

    This is a subcategory of saving plans. Most saving plans are non-linked, which means the returns accrued are independent of the capital market. This makes them safe to invest in. However, unit-linked insurance plans are linked to the capital market, and their returns are prone to market fluctuations. However, unit-linked savings investment plans generate good returns. You can even balance out the risk by staying invested in it for the long term, as opposed to a short-term savings plan.
     
What are the Benefits of Savings Plans?
 

 

  • Assured maturity benefits

    One of the biggest benefits of a savings insurance plan is that it gives policyholders assured and guaranteed1 returns. Because most savings plans are non-linked, the returns accrued are safe from market ups and downs and are risk-free.

    In addition, the interest rate gets fixed at the start of the savings policy, so there is no confusion when the returns and maturity benefit become payable. In some savings plans, you also get bonuses2 on the sum assured.

  • Flexible returns

    The best part about a savings policy is that the returns earned are flexible. You can choose when and how to receive them per your changing life needs. For instance, you can choose to receive the funds during your child’s higher education, marriage, or purchasing a home.

    Furthermore, you can select monthly income payouts, regular income payouts, a lump sum payout, or a combination payout option. In addition, the premium payments are flexible – you can choose between monthly, quarterly, half-yearly, and yearly payment options.

  • Life insurance cover

    What makes a saving plan a hit among buyers is the added comfort of life insurance. Life insurance is an essential tool to secure your loved ones in your absence and help them continue living their lives. In addition, it gives a death benefit that works as a financial reserve through times of crisis.

  • Various rider# options

    Savings plans also offer various rider# additions that provide extra financial support over and above the base maturity and death benefit. Many situations in life aren’t deadly but are life-altering. Riders# provide additional finances during tough eventualities like accidents, critical illnesses, terminal ailments, job loss, physical disabilities arising from an accident, and the like.

  • Tax* benefits

    Saving lfe insurance policies also come with several tax* advantages under the relevant sections of the Income Tax* Act of 1961. Under the Act, the premiums you pay towards the savings plan are claimable as tax* returns under section 80C. You can claim up to ₹1,50,000 in a given year. In addition, under section 10(10)D of the Act, the maturity benefit and death benefit you receive under the savings policy are exempt from tax* deductions. These tax* advantages make a savings plan a profitable investment.
     
Conclusion


At its core, savings plans work on the simple principle of compounding. They take your invested money, multiply it over the years, and give it back to you after a specific timeframe. The added aspect of life insurance makes them an all-around financial instrument.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Why are savings plans important?

Savings plans are important because they combine life insurance coverage with a savings component. Thus, you get two benefits under one single life insurance plan. 

Which is the apt savings plan to buy?

There is no apt saving plan for everyone. Different people have different requirements, so compare different plans and choose the one that is right for you.

Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.
  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.