Savings and investment plans are important aspects of your financial journey. But they are very different from each other. A savings plan is about setting some money aside in a fund, getting returns, and having a death benefit in case of an unfortunate event. At the same time, an investment plan is about getting an asset to work for you and generating good returns. You can use up the investment’s returns to even fulfil your financial goals and needs.
If you are wondering what to opt for, then the best idea is to compare the two together to see which is the best option. Here is how you can make a comparison to determine the right decision.
A Guide on Comparing Investment and Savings Insurance Plans
The following points will help you check which one is better for you: an investment or a savings insurance plan.
Define your Financial Goals
Start with understanding your financial objectives. Are you looking for something that gives your family financial security while boosting your savings or do you want short-term plans that will have lower premiums? You could even go with long-term plans that have better returns.
Understanding your needs helps narrow down your options effectively. You can then pick only the plan that aligns with your goals.
Assess Your Risk Tolerance
When you are deciding whether you prefer a savings plan or an investment plan, it’s always better to check your risk appetite. A savings plan might be less risky than any market-linked investment insurance plan. But, you need to compare the risk profile of the market-linked plans with the traditional plans.
Once you have evaluated, you can decide which risk level will align with your comfort zone. Then, you can pick the guaranteed return plans whose outcome will be predictable and stable.
Compare the Features of Savings and Investment Plans
A good way of determining whether you prefer an investment or a savings plan is by comparing both of their features. Some of the following key features to consider include, but are not limited to:
- Tenure: Compare both the long-term and short-term options based on your financial objectives.
- Returns and Payout Options: Check whether the plans provide returns during specified intervals or if they provide a big return at maturity.
- Coverage Benefits: Evaluate whether the insurance covers you during an unforeseen event or not.
You may consider further features to compare, but these will give you a good starting point. Select a plan that will balance your objectives with the kind of coverage and returns you want.
Compare the Rates of Return and Growth Potential
The returns on investments and savings insurance plan differ depending on the type of plan you have. Compare them with each other to see which has the greatest growth potential.
Generally, a best savings plan for future provides fixed or guaranteed returns with low risk. An investment plan could provide high returns but is also influenced by market performance. Look for something that leverages a compounding effect to have the most growth with time.
Use calculators online to check the potential growth of your plan or what the maximum return could be.
Costs and Charges
Every plan comes with a set of costs, and these could affect your returns. So look into the policy charges like the administration fees and others, surrender fees, and any other hidden costs.
The surrender fee is deducted as a penalty if you have to exit a plan before its maturity. For example, if you invest ₹1,00,000 in a plan and exit early, a 10% surrender fee will reduce your returns to ₹90,000.
You should also read the policy terms very carefully to ensure that you walk into a plan with complete transparency.
Estimate the net returns once you have deducted the charges from it to understand how much you actually profit from a plan.
Check the Payment Options
Experience a significant difference with flexibility in your premium payments. Compare the payment frequency, premium amounts, and the rest. Check whether the payment frequency is monthly, quarterly, or annual.
You also need to consider whether the premium for the savings or investment plan fits your budget while also providing adequate returns and coverage. You could also look into single-premium plans that only require a one-time investment. For instance, a single-premium savings plan may be better if you have a lump sum to invest upfront, while monthly premiums may work for a steady income earner.
Pick a plan that has flexible payment options and will align with the rest of your finances.
Summing Up
Whether you pick an investment or savings insurance plan will make a big difference in your future. At the same time, you not only need to pick something that will benefit you and your family but also be easy to pay for. You can set aside a budget for the premium and then look for plans that will provide what you need while being within that budget. Even once you have selected a few plans, you can make a comparison within those plans to see which is the best choice for you.
FAQs on Investment and Saving Insurance Plans
- How can I compare different investment returns?
You can compare the outcome of your investment by considering its annualised per cent return. You can also factor in the transaction fees, tax returns over the years, and other factors to make the comparison.
- Why should I invest in a savings insurance plan?
You could invest in a savings plan due to financial security, get tax benefits, earn interest, grow your wealth, or even have an emergency fund. Investing in a savings plan has innumerable benefits, depending on your financial objectives.
- Why should I get an investment plan?
Investment plans help with protecting from inflation. They also help manage your risks, plan for your retirement, grow your capital, and have a safety net for your future.