These days, relying on a single source of income seems unwise. You need a passive income as well as an emergency fund to tackle financial crises that arise without notice. While investment plans are always a good idea for passive income, new-age saving insurance plans can be a lifesaver.
What are saving insurance plans?
Life insurance is a basic necessity. These plans protect your loved ones from financial stress in the event of your untimely demise.
You can purchase different types of life insurance policies with varying sums assured for 10-100 years. If you pass away during the policy tenure, then your beneficiaries receive the sum assured as a death benefit. If you survive the policy tenure, you may be entitled to the maturity benefit, depending on the type of plan, which can serve as an excellent savings plan.
Saving insurance plans, on the other hand, are not flukes. These are insurance schemes that you purchase for dual purposes of securing your family’s future and building an emergency savings fund.
Saving insurance plans are a category of life insurance policies. These are categorised based on their benefits as follows:
- Endowment plans – These are life insurance policies that offer you bonuses for being a participating member of the plan. The insurer invests part of your premium, and you are entitled to the profits. You may withdraw these profits during times of financial crises, thus making them emergency funds.
- Money-back plans – These are another form of life insurance plans wherein the insurer allows you to withdraw a specified sum of money from the total premium paid at regular intervals. In case of your demise, despite making withdrawals, your beneficiaries are entitled to the death benefit.
Both these policies are strong emergency funds that you can withdraw from at your discretion. These insurance schemes allow you to build a nest egg and reach out to your insurer during financial setbacks to acquire support by digging into your own fund. These saving insurance plans are perfect if you do not wish to take loans or incur debt. Instead, you are technically using your own money.
What is the difference between savings and investment plans?
Saving insurance plans come in many forms. Some typically offer bonuses like endowment plans and money-back plans. Others are private or public schemes provided by the government or employers to support building emergency funds.
There is a difference between savings and investment plans. Although the line is very thin between what separates the two, here are some notable points of difference between savings and investment plans:
- Saving insurance plans allow you to invest in safe products such as provident funds, endowment plans, national savings certificates and bonds, etc.
Investment plans allow you to invest in a diversified portfolio of equity and debt funds. You can also mix and match to increase your ROI.
2. Saving insurance plans offer guaranteed returns for safekeeping your money.
Investment plans are volatile. They use market instruments to grow your wealth. If the investment does not pan out, you would be taking a greater risk. However, if the risk pays off, investment plans can help you earn more.
3. Saving insurance plans are time-specific. That means they are only valid for a specified duration of time.
Investment plans allow you to grow your wealth exponentially for as long as you want to keep your money invested.
4. Saving insurance plans have a lower return on investment. It is prefixed, and increasing your investment amount will not change the rate of return.
Investment plans offer a higher return on investment. The more money you invest, the type of fund in which you invest, and the longer you invest, your insurance plans compound your profits.
There are several minute points of difference between savings and investment plans. Saving insurance plans are much safer to invest your money in, and in the event of your untimely death, your beneficiaries are entitled to the death benefit. The perks of saving insurance plans are also predetermined. Therefore, you can anticipate the amount of profit you can make from ROI.
Investment plans, on the other hand, are uncertain. They can provide medium to large returns on investment. Since these funds operate in real time, you can rest assured that your wealth will grow to meet and beat the rate of inflation. This is not a luxury available with savings plans. However, investment plans also yield much higher risks, which make them unfeasible options when you are tight on cash.
Conclusion
Considering the various points of difference between savings and investment plans is the best way to identify the ideal emergency fund for you. You need to consider the one that does not upset your financial plan and still builds a strong and substantial corpus. Based on your risk appetite, you can choose saving insurance plans or investment plans.
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