Savings Plans: What are They and How Do They Work?

Knowing how to plan savings is an essential skill for achieving your financial goals. If your priorities are wealth creation and securing the financial future of your family, then you can opt for a savings plan that offers the dual benefit of wealth building with life insurance. Let’s understand the savings plan meaning in some detail.

What is a Savings Plan?

Individuals with a low-risk appetite who prefer a safe investment option find an ideal solution in a savings plan. One of the most popular financial products when it comes to investments, a savings plan is designed to encourage discipline for saving and provides a decent return to the holder.

For individuals wondering how to plan savings for their specific goals, insurance providers now offer savings plans that are designed for milestones such as higher education, travelling, home purchase, wedding, etc. One can also rely on their savings plan to clear debts or take care of financial emergencies such as loss of job or health emergencies.

Now that we know the savings plan meaning, let’s take a look at the different types of savings plans so you can choose the best monthly savings scheme for yourself.

Different Types of Savings Plans and How They Work

Savings plan meaning is better understood when you know how the policy works. The working of a savings plan is similar to that of an insurance policy. The insured member pays a fixed premium for the savings plan. This money is invested in non-market instruments and yields predetermined returns. Funds grow over time, and at maturity, the individual receives income periodically or as lump sum.

Now that we understand what is a savings plan, let’s explore the different types of savings plans so you can opt for the best monthly saving scheme for yourself.

• Monthly Savings Plan

  This is a basic plan under which the individual receives a monthly guaranteed income after the plan matures. This monthly income can then be used for everyday expenses. It also comes with life insurance coverage.

• Guaranteed Return Plan

  The guaranteed returns savings plan is the best monthly savings scheme for individuals looking for guaranteed and assured returns for major life events. The rest of the money is given at the maturity of the savings plan. This policy comes with life insurance cover. One benefit that sets this plan apart is the liquidity option that enables the individual to encash their money from time to time.

• Money-Back Plan

  Many might think what is a savings plan if it does not offer any survival benefits? For such individuals, a money-back policy grants a portion of the assured sum at set intervals, known as “survival benefits.” These payments are regardless of whether the insured member survives or passes away. This policy combines life coverage and periodic cash inflow for needs like education, marriage, housing, and financial aspirations.

• Endowment Plan

  An endowment savings plan provides a maturity benefit upon its conclusion, coupled with life insurance coverage. These plans can be profit or non-profit. Profit policies include earned company profits and returns, while non-profit policies offer only accrued returns.

• Unit-Linked Investment Plan

  Unit-linked insurance plans are linked to the capital market, and while their returns fluctuate based on the market, they offer higher returns in the long run.
  For those wondering how to plan savings, knowing various types of savings plans can help them get closer to achieving their financial goals.

Benefits of Savings Plans

Here are additional benefits of a savings plan that every individual should be aware of:

• Savings plan comes with a life insurance cover to secure the financial future of your loved ones in the unfortunate event of an untimely death.
• Policyholders can customise and strengthen the basic savings plan with a choice of add-ons that provide financial support over and above the basic maturity and death benefits.
• Savings life insurance policies offer tax advantages per the Income Tax Act of 1961. Premiums are claimable under section 80C, up to ₹1,50,000/year. Maturity and death benefits under section 10(10)D are also exempt from taxes.

Conclusion

Simply knowing what a savings plan is not enough. To find the best monthly saving scheme, individuals must identify their financial goals, analyse their risk appetites, and choose a plan accordingly.
A convenient way to start creating your savings is through a savings scheme that grows wealth in long term. So, take a look at PNB MetLife’s Long-Term Savings Plans and choose the one that suits you best.

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