Can I combine life insurance plan with a savings objective?

Apr 08, 2019 | 2 weeks ago | Read Time: 3 minutes | By iKnowledge Team

Smart financial products allow you to combine multiple financial objectives in one bundle allowing you to simplify your financial portfolio.

 

Savings are defined as the money that one has saved over a period of time, whether in the form of bank balance, investments, or any other source. One of the major financial goals for every person is to create a sizeable corpus of savings for life goals such as child’s education expenses, child’s wedding expenses, retirement planning, emergency fund for medical emergencies etc. Creating these savings requires dedicated and consistent investment over a number of years in many different avenues. Some of the popular avenues for creating these savings are:

 

  • Fixed deposits
  • Provident Funds
  • Pension Funds like the National Pension Scheme
  • Shares, mutual funds
  • Corporate bonds and fixed deposits

There is one more way of building up savings and a corpus and that is by investing in life insurance. Investing in an insurance policy is a way of providing savings for your family in case of any untoward emergencies. The importance of insurance policies for a prudent investor cannot be undermined. An adequate insurance policy ensures the family is financially secured and also provides for specific life goals.

One of the main features of life insurance is that it is a long-term investment. The returns on long term investment factor in the ups and downs of the economy and markets to provide a higher return to the policyholder. Even then, one of the main concerns for any policyholder is the lack of clarity about the final amount they will receive from an insurance policy.

To completely be sure about the payout on maturity from an insurance policy, you should invest in endowment insurance policies. Endowment policy provide a fixed maturity benefit for policyholders. Traditionally, these plans have some bonus elements added by the insurance company and also a loyalty bonus if the insurance company decides. But, with the improvement in guaranteed return insurance plans, policyholders are getting better insurance policies which are integrating life insurance with a savings objective.

Consider Aegon Life’s Guaranteed Return Insurance Plan (GRIP). Under GRIP, the return received on maturity is fixed and clearly disclosed in the policy document. Another feature of GRIP is that the policy term and the premium paying term are different. What this means is the premium paying term is less than the policy term which allows the policyholder to enjoy years without paying premium but still get a return on the policy. This insurance policy provides guaranteed additions that get credited to the policy every year and also a loyalty bonus on maturity. It also specifies the death benefit clearly.

Investing in such a policy ensures that you get the advantage of having a life insurance plus a corpus is built for you to be received on maturity. This corpus when received can be reinvested in other savings instruments which will provide fixed income and create additional savings. In case of death of the policyholder, the death benefit will be received by the family which ensures the family gets financial security.

The GRIP provides an increase in the guaranteed returns as the policy term increases. The guaranteed payout on maturity can go up to 325% of the basic sum assured. By clearly spelling out the terms and the expected payouts, GRIP clearly shows the advantages from investing.

Under GRIP, the maturity benefit is a combination of:

  • Basic Sum Assured: This is decided for every policy based on the policyholder’s age, premium paying term, and policy term.

 

  • Guaranteed Additions: This bonus is accrued every year at the rate of 10% of the basic sum assured. It is credited to the basic sum assured every year. Thus, the value of the policy keeps increasing as the number of years of the policy increase.

 

  • Loyalty Booster: This booster is given out to loyal policyholders who have been customers of the insurance company for the entire policy’s duration. It is calculated as 25% of the basic sum assured.

 

Let us take an example. Arvind insures himself under GRIP for an annual premium of Rs. 90,000 to be paid for 10 years. The policy term is 20 years. The Basic Sum Assured under GRIP is Rs. 500,000.

 

On maturity, Arvind will receive 500,000 + 10,00,000 Guaranteed Additions + 125,000 Loyalty Booster. Thus, by paying premiums of Rs. 900,000, Arvind receives a maturity payout of Rs. 16,25,000, which is 325% of the basic sum assured. The policy also provides a death benefit of basic sum assured + guaranteed additions.

 

This makes the GRIP a fantastic combination of a life insurance plan and savings. Have you invested in it yet?

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