The sole purpose of life insurance is to lessen the financial risk connected with early death. In this sense, term insurance policies safeguard against the chance of an early demise as well as the financial concerns that go along with it. Many policyholders, nevertheless, want their life insurance to also serve as a savings vehicle. Guaranteed Income Plans become relevant in this situation.
Let’s explore:
What are Guaranteed Income Plans?
Guaranteed income plans are life insurance options that bundle savings and insurance protection into a single policy. These plans are available as money-back or endowment plans with a death benefit for the duration of the policy. During this period, a guaranteed death benefit is given if the insured passes away. On the other hand, guaranteed income plans provide a maturity benefit if the life insured lives through the policy term.
Benefits paid out under these schemes are typically fixed or guaranteed. They are referred to as “guaranteed income schemes” for this reason.
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Do guaranteed income plans make sense as investments?
Investors looking for insurance protection and guaranteed savings from a single product can consider guaranteed income plans. Before investing in these plans, you should think about the following advantages and disadvantages:
Benefits of Guaranteed Income Plans
Guaranteed income plans perform well on a variety of fronts. Look at this –
Guaranteed returns
To begin, as the name implies, guaranteed income plans provide guaranteed returns upon either premature death or maturity. Furthermore, many plans provide extra returns in the form of bonus additions, guaranteed additions, boosters, loyalty additions, and so on. These additional returns supplement the benefits and provide you with better returns, which are also guaranteed.
Long-term savings
Guaranteed income plans are usually long-term life insurance plans which help you save in a disciplined manner. Thus, if you choose these plans, you can build a long-term savings corpus for your financial needs.
Contribute to the achievement of financial objectives
Guaranteed income plans assist you in meeting your financial objectives even when you are not present. The death benefit paid under these plans provides a financial corpus for your family to meet their needs. On the other hand, the maturity benefit provides you with an accumulated corpus that you can use for various financial goals such as your child’s education, retirement planning, home purchase, and so on.
There are also specialised child insurance and pension plans available as guaranteed income plans. These plans are so designed that they cater to specific financial goals and help you fulfil them easily.
There are no investment risks.
Guaranteed return plans do not invest in the stock market, which is highly volatile. They instead guarantee the returns and protect your investment from market risk.
Insurance coverage
Guaranteed income plans, which are life insurance plans, provide much-needed insurance protection. This insurance policy offers financial security to you and your family by promising a benefit in the event of a premature death.
Tax advantages
Finally, guaranteed income plans can help you save money on taxes. The premiums for these plans are deductible from your taxable income. Section 80C allows a deduction for premiums up to 10% of the sum assured, subject to a limit of INR 1.5 lakhs. Furthermore, if the premium was up to 10% of the sum assured, the policy returns and maturity benefit are completely tax-free under Section 10(10D).
In the event of death, the death benefit is also completely tax-free, allowing your family to use the full benefit paid on death.
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What are your options?
Since the returns are fixed, there is a chance that the returns generated by these plans might not outperform inflation. If your returns are not able to keep pace with inflation after long-term saving, you may not be able to create a sufficient corpus for your financial goals.
There are no drawbacks other than the one disadvantage of guaranteed income plans. So, if you are risk-averse and want to build a risk-free corpus for your financial goals, guaranteed income plans are an option. The tax aspect provides additional benefits and aids in the creation of a tax-efficient corpus. So, learn about guaranteed income plans and then select one that meets your requirements.
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