Saving money with discipline can be challenging, especially when you have multiple goals to prepare for—like buying a house, funding your children’s education, or building a financial cushion for emergencies. This is where saving plans come in. They are structured financial products that combine regular savings with protection benefits, helping you achieve your goals while ensuring peace of mind for your family.
Here’s a clear look at how saving plans work, their types, and how they differ from products like term insurance.
What is a savings plan?
A savings plan is a financial policy you enter into with an insurer. You agree to pay a regular premium for a chosen period, and in return, the insurer promises to pay you a lump sum or periodic payouts at maturity. If something happens to you during the policy term, your nominee will receive the life cover amount, offering financial security during a difficult time.
This dual feature—wealth accumulation and protection—makes saving plans especially attractive for people who want a balanced approach to planning for the future.
Types of saving plans and how they work
There are several saving plans to suit different needs and preferences:
Endowment plans
An endowment plan is among the most popular saving plans. You pay premiums over a defined period. If you outlive the policy term, you receive a guaranteed maturity amount, often with bonuses declared by the insurer. If you pass away during the term, the life cover is paid to your nominee.
Endowment plans are considered low-risk because returns are not tied to the stock market.
Money-back plans
Money-back saving plans give you periodic payouts during the policy term, which can help you meet medium-term goals, such as paying for children’s school fees or covering big purchases. The remaining sum assured and any bonuses are paid at maturity or to your beneficiary if you pass away before the policy ends.
Guaranteed return savings plans
These plans promise a fixed return, determined at the time you start the policy. You can choose to receive the maturity amount in a lump sum or as regular income. Many people prefer guaranteed return plans because of the certainty they provide over time.
Monthly income saving plans
In a monthly income plan, you pay premiums for a few years, after which you start receiving a steady monthly payout. This can be particularly useful if you expect to have ongoing expenses or want predictable income to supplement your earnings.
Unit-linked insurance plans (ULIPs)
Unlike traditional saving plans, ULIPs invest part of your premium in equity or debt funds. Returns are linked to market performance, so they carry higher risk but also have the potential for higher growth. ULIPs are suitable for those willing to stay invested for longer durations to ride out market fluctuations.
How do saving plans differ from term insurance?
While saving plans combine wealth creation and protection, term insurance is purely a risk cover. With term insurance, you pay a premium solely for life protection. If you pass away during the policy term, the insurer pays the death cover to your nominee. If you outlive the term, there is usually no payout (except in return-of-premium variants).
Because term insurance is designed for protection only, it offers high coverage at very affordable premiums. In contrast, saving plans have higher premiums as part of the money goes towards investment and guaranteed returns.
Benefits of saving plans
Saving plans come with several advantages:
- Guaranteed maturity benefits: You receive a clear payout at the end of the policy, regardless of market movements.
- Flexible payout options: You can choose to receive income monthly, regularly, or as a lump sum.
- Life cover: Your loved ones receive financial support if something happens to you.
- Riders: You can enhance coverage with options like critical illness or accidental disability benefits.
- Tax benefits: Premiums paid towards saving plans qualify for deductions under Section 80C, and maturity or death payouts are tax-free under Section 10(10D) (subject to applicable conditions).
Conclusion
Saving plans offer a reliable way to combine disciplined savings and life cover, helping you plan for life’s milestones while protecting your family’s future. Whether you prefer the certainty of endowment policies or the growth potential of ULIPs, there is a plan to suit every need. By understanding how these products work and how they differ from term insurance, you can make informed choices that support your financial goals and give you lasting peace of mind.
