Saving up for the future is an important part of financial planning. One never knows when life can go awry! Sure, you have a good job and a steady income at the moment. But what if things suddenly change? The COVID-19 pandemic has shown us how we should always be prepared for anything. Having an emergency fund may be imperative for peace of mind.
You may wonder, ‘What is the best way to save money?’. Sure, you may already have a bank account where you put aside sums of money each month. But is that enough? Do you also need to take an insurance savings plan?
In this article, we aim to answer these questions and some more.
Let’s get started –
Insurance savings plan vs. a bank account – how does each one work?
If you open a regular bank account, you decide how much money to deposit to build your savings. You can put money as frequently as you like – once a week or even once a month. You simply need to set a goal and make sure you stick to it.
An insurance savings plan works differently. In this plan, you can either choose a single premium or a regular premium payment term. These premiums help you build a corpus of funds over the plan’s tenure. When your saving plan matures, you get a lump sum payout. Some insurers guarantee to protect what you have invested when the plan matures so that you do not lose on the money you have paid as premiums. Depending on the different benefits available for various plans, some plans even have a yearly cash benefit.
What kind of returns can I expect with an insurance savings plan?
With an insurance savings plan, you can expect interest rates of around 3% or even more per annum. With this kind of an interest rate, you can make good headway on your savings goals. You may consider taking an insurance savings plans for very specific goals such as buying a new home or for your retirement savings.
So, should you opt for an insurance savings account if you already have a bank account?
An insurance savings plan requires you to commit to your savings goals as your premiums are due based on your selected payment frequency. In order to stick to your saving plan and goals, you will likely ensure that you keep aside enough money to make premium payments so that your plan does not lapse.
Plus, you get additional benefits in the form of life coverage from an insurance savings plan. These plans come with a death benefit where your plan’s nominee gets paid a lump sum amount if something unfortunate happens to you. Also, you can opt to enhance your plan’s benefits by choosing riders which can waive your premiums if you get diagnosed with a critical illness or certain early/intermediate stage medical conditions.
From this, we can see that an insurance savings plan might be a great way to save money even if you already put aside funds in a regular bank account. You can choose to get an insurance savings plan for specific goal-driven savings such as saving up for your child’s university studies. At the same time, you may also maintain a regular bank savings account for emergency expenses that you may need to withdraw frequently. This way, you can strike a good balance and maintain both of these wonderful ways of saving up.
For further advice, do reach out to a financial consultant. We hope that this article has been a good read. All the best!