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Should one prefer a guaranteed savings plan over monthly income schemes?

While term insurance for disabled people might be a daunting task but it is not impossible, with the right term plan, making regular premium payments, one can have an ideal term policy. Read ahead to learn more about the guide for disabled people.

  • 5,449 Views | Updated on: May 24, 2024

One hustles and toils their entire life to achieve their financial objectives. It goes without saying that it is essential to invest your hard-earned money in a secure investment. A savings strategy can speed up the closing in on your long-term financial objectives, whether you are preparing for your post-retirement lifestyle or the marriage of your children.

While there are many ways to save money and boost the value of your investments on the financial market, including monthly savings plans, life insurance, savings plans, etc. You can also receive the assurance of fixed and guaranteed returns with a guaranteed savings plan.

The premium amount, tenure, death benefits, lump sum payout vs. monthly pension alternatives, returns, terms and conditions of the plan, etc., should all be considered before making a purchase.

What is a Guaranteed Savings Plan?

A guaranteed income plan is a traditional non-participating policy that guarantees a return on your savings. By paying the premium on time, you are promised returns that will enable you to achieve your long-term objectives upon plan maturity.

Eligibility to Buy a Guaranteed Income Plan

The policy is accessible to individuals who are 18 to 60 years old. Within this age range, policyholders have the option to select a term of 5 to 30 years. This ensures a versatile duration that caters to the financial objectives and preferences of the policyholder

Features of Guaranteed Income Plans.

Guaranteed income plans have gained significant attention as a reliable investment option that offers a regular income stream while safeguarding against market fluctuations. These plans have become increasingly popular due to their attractive features of monthly income schemes and the security they provide. Now that you know what guaranteed income plans are, let us now explore their salient features.

Assured Income Stream

The primary feature of a guaranteed income plan is the assurance of a fixed income stream for a predetermined period or for the rest of one’s life. This regular income provides financial stability and helps individuals meet their ongoing expenses, even after retirement. The income payments are predetermined and do not rely on market performance, ensuring a predictable and reliable source of cash flow.

Protection against Market Volatility

One of the standout advantages of guaranteed income plans is their ability to shield investors from market volatility. Unlike traditional investments like stocks or mutual funds, guaranteed income plans are not subject to fluctuations in market conditions. This feature provides peace of mind, as individuals can be confident that their income will remain stable, regardless of economic downturns or market crashes.

Flexibility in Payout Options

Guaranteed income plans offer flexibility in choosing the payout options that best suit an individual’s financial needs. Depending on the plan, one can opt for monthly, quarterly, or annual income payments. This flexibility allows individuals to align their cash flow with their specific financial obligations and goals. Additionally, some plans offer the possibility of lump-sum withdrawals or a combination of regular income and lump-sum payments.

Lifetime Income Option

Many guaranteed income plans provide the option of a lifetime income stream. This means that the income payments will continue for the rest of the individual’s life, regardless of how long they live. This feature addresses the concern of outliving one’s savings and offers a reliable solution for retirees seeking a stable income source during their golden years.

Death Benefit Provision

Another noteworthy feature of guaranteed income plans is the inclusion of a death benefit provision. This provision ensures that a designated beneficiary receives a lump sum or continued income payments in the event of the plan holder’s death. This feature offers a safety net for loved ones and allows individuals to plan for their family’s financial security, even after they are no longer around.

Benefits of Guaranteed Income Plans

The idea of guaranteed income plans has garnered considerable interest as a promising solution to tackle economic disparities and reduce poverty. Guaranteed Return Plans provide a guaranteed sum assured along with numerous additional advantages. Let’s explore some of these benefits now.

Event of Demise

In the unfortunate circumstance of the policyholder’s passing during the policy term, the assigned nominee or beneficiary will receive the death benefit comprising the reversionary bonuses and, if specified, the terminal bonus. The payouts are disbursed over the next 15 years or as indicated in the policy terms.

Additional Add-Ons

Guaranteed Return Plans often offer optional supplementary provisions or add-ons that policyholders can acquire to enhance the coverage. These provisions provide supplementary advantages or protect against specific risks. For instance, riders such as critical illness cover or waiver of premium benefits can be appended to the underlying policy, tailoring it to the policyholder’s specific coverage requirements.

Simplicity and Convenience

Guaranteed return plans are known for their simplicity and ease of comprehension. The investment process is usually hassle-free, involving minimal paperwork and administrative formalities. Opting for online purchase of the Guaranteed Return Plan grants customers added benefits like transparency, no hidden charges, and clear explanations of costs and returns. The straightforward accessibility of these plans makes them suitable for a wide range of investors, including those with limited knowledge or experience in complex investment products.

How is the Guaranteed Savings Plan Better than a Monthly Income Scheme?

The conservative, low-risk investors who seek a consistent income stream typically favor monthly income schemes, which are programs in which you invest a set amount regularly. It offers liquidity and offers a set monthly return. Some of the most popular monthly savings plans include Fixed Deposits, Highest Return Monthly Income Plan, Corporate Deposits, and Senior Citizen Saving Plans.

However, the monthly income programs typically do not provide a set income. Therefore, GSP will be ideal if you want to make long-term investments to help you achieve your objectives, like retirement. The following advantages of GSP also make it an excellent option for long-term plans:

Guaranteed Maturity Benefits

You receive the guaranteed maturity benefit as stated when the plan matures. Depending on your needs and objectives, you can acquire the same using different techniques like a lump sum payout or a monthly payment. The beneficiary will get the promised returns in the tragic event of the policyholder’s passing.

Feasibility

Depending on your goals and finances, you can determine the length of your plan and its coverage. Compared to traditional life insurance, the premium paid is reasonable and provides better returns. The basic sum assured, the guaranteed addition, and the loyalty addition makes up the entire maturity benefits. The experts advise investing in GSP for a more extended period of time to maximize rewards.

Tax Benefits

For premiums paid up to ₹150,000, you are eligible for a tax exemption under section 80C of the Income Tax Act of 1961.

Flexibility

You can select a plan based on your financial situation and personal preferences. For instance, if you are saving for retirement, you might choose longer-term insurance; if you are saving for your child’s education, you might choose a shorter-term policy. You can receive the guaranteed amount in a single sum after the term or in monthly installments. Depending on your interests, you can decide between a lump sum and a monthly income. The lump sum is paid once, whereas the monthly payment is delivered to you for the rest of your life, allowing you to spend it however you see fit.

On the other hand, a monthly pension payment is a regular payment schedule that ensures the policyholder will receive monthly money for the rest of their lives to cover their basic necessities. If you need clarification on whether a lump sum payout or monthly income is a better alternative, define your objectives and choose your financial strategy.

Conclusion

Monthly pensions assist you in maintaining a respectable standard of living, whereas a lump sum payment gives you flexibility and discretion in how you spend the money. If you want assured returns for your future ambitions, a guaranteed monthly income plan from a trustworthy insurance provider is the best option. It has low risk, produces high returns, has tax advantages, and gives investors a variety of payout possibilities. These plans also give you the option of a limited premium payment period and guaranteed maturity benefits to achieve your financial goals.

    Key takeaways

  • A guaranteed monthly income plan is a traditional non-participating policy that guarantees a return on your savings.
  • Some guaranteed income plans may require applicants to undergo a health evaluation or disclose their medical history.
  • Guaranteed income plans have gained significant attention as a reliable investment option that offers a regular income stream while safeguarding against market fluctuations.
  • The primary feature of a guaranteed income plan is the assurance of a fixed income stream for a predetermined period or for the rest of one’s life.
  • Guaranteed income plans offer flexibility in choosing the payout options that best suit an individual’s financial needs.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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