A robust savings plan can be a useful asset during any unexpected situation in our lives when we do not have any emergency corpus to take care of our finances. For instance, many people had to face financial hardships last year during the onset of the pandemic. We cannot predict when the next emergency will arrive in our lives. However, it is never too late for us to start planning. Hence, people who could not build emergency corpus previously can now do so by opting for either suitable life insurance with a return policy or by choosing a life insurance savings plan from a reliable life insurance company.
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How Much Savings Do You Need?
Depending upon your regular expenses and income, an emergency fund can be an amount between three to six months of your income. Apart from your everyday expenses, you must also closely monitor any change in expense over a period of time. You can even divide your emergency savings fund into two categories, such as:
- Long-Term Emergency Fund
You can choose a long term savings plan where you can save a large amount of money for huge emergencies such as a serious medical emergency or a natural disaster. You must consider a plan which offers you to accumulate wealth but at the same time also provides liquidity options for emergency withdrawals.
- Short-Term Emergency Fund
You can utilise this fund in case of smaller emergencies such as minor accidents or illnesses. You can try your best to tackle the emergency with a short-term emergency fund before you think of moving to your long-term emergency fund for assistance.
How Savings Plan Can Help You During Emergencies
A Savings Plan in times of emergencies can help you in the following way:
- Offers High Liquidity: Savings Plan offers high liquidity, which allows you to withdraw the necessary amount during times of emergencies.
- Provides Guaranteed Returns: Some Savings Plan promises to offer you Guaranteed Returns, which you can use in later stages of life as an Emergency Fund.
- Secures You a Life Cover: A Savings Plan, apart from wealth building, also offers you life cover, which enables you to secure your life and offer financial protection to your family in case of your untimely demise.
- Helps Save Tax: A Savings Plan is essentially a Life Insurance that offers you the same tax benefits as other life insurance products. You can avail of tax exemptions of up to ₹1.5 lakhs on the premiums you pay towards your plan as per Section 80C of the Income Tax Act.
Choosing the Right Savings Plan
Apart from financial security, choosing the right savings plan can offer you a smart way to build wealth. Investment options such as equity and mutual funds can offer you long-term wealth creation options, but an assured savings insurance plan can offer you both cover as well as investment benefits.
- Endowment Plans
If you are not a high-risk taker, you can choose endowment plans because they allow you to build wealth in a safe way over the long term, along with life cover. The plan allows you to receive either a lump sum amount or monthly instalments when your policy matures.
If you survive the policy term, you can also use the maturity benefit for financial objectives such as the education of children, their marriage or your retirement. You can use endowment plans as the best-guaranteed return plan.
- Regular Income Plans
Regular Income Plans offer you a guaranteed sum amount at a predetermined frequency. Moreover, a bonus is also added to the final maturity amount. The percentage of the bonus, however, would vary across different policy providers.
You can use Regular Income Plans as a short-term emergency fund option. You can easily find the best Income Plans over the internet where numerous insurance companies would also offer you additional discounts.
When you plan to save for your emergency fund, you can consider the options which have been discussed above. It is true that as pure investment schemes, life insurance plans may not offer you the best returns. However, life insurance products such as savings plans come along with coverage to your life which makes them a great option for safety along with wealth creation.