Every breadwinner of a family usually wonders what would happen if they suddenly lose their life. In today’s day and age, expenses are rising rapidly, making it difficult for families to sustain their lifestyles. Life insurance is a product that was launched for creating an alternate source of funds for families who lose their primary earners in unexpected ways.
Life insurance plans allow an individual to secure their family’s future in their absence. The one who buys the insurance is known as a policyholder. When a policyholder purchases life insurance, they pay premiums on a recurring basis. During the duration of the policy, if the policyholder loses their life, the nominee will receive a sum assured by the insurance company.
There are several types of life insurance available depending on your goals. If locking all the money in life insurance leaves you little to no room for investments, there are options available for those too. There are several life insurance types that offer the blend of investment or saving along with providing a life cover. Before making a choice between life insurance or life insurance with savings, it is important to understand life insurance with a savings plan.
What is life insurance with savings?
A savings plan is also known as an income plan. Such types of life insurance policies provide guaranteed returns to the policyholder. They meet two major needs of the policyholder by providing them with a life cover and encouraging savings for their future goals. One reason that they have gained popularity is that individuals find it easy to save in a disciplined manner with such plans. With these life insurance plans, you can decide the form of payout you want. It can either be a lump sum payout or a monthly one.
There are different types of life insurance policies that offer savings or investment components. Before you narrow it down, it is important that you access your own needs. Depending upon your financial goal, responsibilities, and existing investments, you can choose the one that meets your needs.
What is the difference between life insurance or life insurance with savings?
Since both are life insurance at the core, the difference arises from the savings/investment quotient of the plan. Here are some key factors where life insurance with savings differs from simple life insurance:
Payouts
There are different types of life insurance policies, each offering different benefits. With only a life policy, when your policy matures, there are no payouts or benefits that you receive. While, if you have invested in life insurance with a saving or investment component, you receive a maturity amount at the end of the policy. For example, with ULIPs, when your policy matures, you receive the fund value of your investment. Fund value includes the amount you had invested along with the returns you earned on it.
Provides financial protection
Any life insurance plan that you buy has a life cover to offer as a fundamental benefit of the plan. However, there is a thin line that separates a regular life insurance policy from the ones that include savings. With a savings plan, you also receive survival benefits when your life insurance matures. These savings/investments can come in handy for achieving various financial goals.
Tax Benefits
The tax benefits of life insurance plans are the same at their crux, with or with no savings component. When you buy life insurance, the premiums that you pay for it are exempt from taxes under Section 80C of the Income Tax Act. The maximum deduction that one can claim under that section is up to Rs 1,50,000. Also, the death benefit that the nominee receives is exempt from taxes. For a savings plan, the maturity amount that you receive when your policy ends is also exempt from taxes, provided certain conditions are met.
Which one should you buy?
There is no obvious best choice for choosing life insurance with or without savings. Both the types serve different purposes and meet different needs. Evaluate the options available and reflect on which one’s meet your needs. Also, check the rider options available and the flexibility to withdraw funds that different plans offer before buying one.
