When you start earning, you begin to understand the importance of savings and how inculcating the habit of savings can help you achieve your life goals. Therefore, it is advisable to ascertain your financial goals and select adequate savings schemes so that you have sufficient funds when they are required. You should also build a retirement corpus or wealth basket to support you in the years after you stop working. There are several savings schemes in India which you can choose from.
Life insurance is an important aspect of financial planning because it serves as a cushion for your family when you are no longer around to support them. Families that lose their sole breadwinners due to unforeseen circumstances such as accidents and illnesses can manage their finances with the help of the sum received under a life insurance policy.
In this context, there are many types of life insurance policies, ranging from a basic life cover to a savings plan for a specific objective, plans that help you enhance your wealth, and plans that help you prepare for your post-retirement years.
What is a savings plan?
A savings plan is an insurance plan that combines the features of life coverage and fund accumulation for a specific financial objective. Such plans can be used for short-term as well as long-term requirements. The most common savings plan is in the form of a retirement or pension plan. Some other types of savings plans are endowment plans and money-back plans.
How do you invest in savings plans?
All insurance companies offer several variants of savings plans which you can purchase online. You need to determine the funds required for a given objective and the timeline by which you need them. You can visit the official websites of the selected insurance company and compare various policies before making your choice.
The main features you should ensure are included in an online money savings plan are:
- The term of the policy
- The premium payment period
- The frequency of the premium payments
- The mode of the payout of the policy benefits
- The option to include add-ons such as critical illness coverage and waiver of premium.
You can download the detailed information brochure to get a clear idea of which plan would be the most suitable for you. Studying the aforementioned document can also help you understand how much you need to save every month to pay the premium for the selected plan. As a baseline, you should park at least 5 to 10 per cent of your savings budget in savings insurance plans.
There are many savings plans for you to choose from, including the TATA AIA life insurance savings plan that has attractive features such as the flexibility of payouts, additional comprehensive illness coverage riders, and tax benefits. Time and effort are two of the main things you can save from the online purchase of a savings insurance plan.
What are the mistakes to avoid while buying a savings plan?
A savings plan is directed towards building a long-term endowment fund. Therefore, you should be careful in complying with the requirements of the insurer while applying for the plan. Here are some common mistakes you should avoid when purchasing a savings plan.
- Not reading the policy details thoroughly: Insurance is a financial product that must be used optimally and with adequate information. Therefore, it is important to read the application form and the information brochure fully so that you can become aware of how the plan works, what your commitment will be, and what constitutes the exclusions to the plan. Not knowing the terms of an insurance plan cannot be a valid excuse for buying a sub-optimal policy.
- Not providing full information: You should make full and fair disclosure to the insurer about your health and medical condition, marital status, other financial liabilities, pending legal disputes, etc. Under many policies, especially for younger applicants, a medical examination is dispensed with. In such circumstances, the applicant should disclose any pre-existing illness such as diabetes, hypertension, hereditary disorders, etc, to the insurer.
- Too many or too few useful add-on riders: Add-on riders enhance the coverage offered by an insurance policy but they should be chosen according to your requirements. Riders also make the plan more expensive; therefore, you should assess exactly what kind of enhanced coverage you need before adding them to your policy. For instance, if you have a child that needs long-term medical treatment, you must select the appropriate rider. Furthermore, the waiver of premium rider enables you to be free of your future premium obligations in the event of a permanent disability or your death.
- Inadequate coverage or overleveraged sum assured: You should plan the sum assured for your life insurance policy based on a proper estimate of the funds that your family would need in your absence. It is important to remember that inadequate coverage cannot sufficiently assist your family. However, if you are a healthy person with no family history of critical illnesses and live a healthy lifestyle, choosing an overleveraged or high sum assured drains you in the form of higher premiums which you can invest in more profitable avenues. Therefore, choose the sum assured after careful consideration.
- Choosing inflexible long-term plans: You could have chosen a plan based on a certain estimate. However, if you face changed circumstances that need a different savings plan, your plan should allow for partial withdrawals, periodic payouts, etc. Emergencies might require funds on an urgent basis and a flexible plan can help you access said funds from your insurance policy.
A good savings plan is essential to fulfill the financial needs of your family as well as to build an endowment fund for the period when you stop earning. Avoiding some common mistakes will ensure that you get the full benefits under the selected plan.