Insurance-cum-Investment Plans | Understanding
What is an Investment Plan?
An investment plan is a financial instrument that helps an investor create sustainable wealth for their future and meet their financial goals by investing in a systematic manner. By investing in these plans an investor can get guaranteed returns, market-linked returns, or a combination of both, depending upon the nature of the plan chosen for investment. To simply put, an investment plan is one of the best and most convenient ways of appreciating wealth over a period of time.
How to Choose an Investment Plan?
Following are the things that you should keep in mind when choosing an investment plan:
Analyze Goals: Analyze your financial goals and requirements
Create a Strategy: Create a strategy to choose the best investment plan as per your requirements
Evaluate Policy Term: Evaluate the term you want to make investment for, keeping in mind several factors such as current liabilities, number of dependents, etc.
Compare Features: Compare several features, cover, riders, premium, payout type, returns etc. before investing in a plan
Diversify Investments: It is recommended to go for a diversified portfolio. This means, instead of investing in one investment plan, you must choose multiples investment plans
Monitor Investments Periodically: Review your investment plans periodically
Documents Required for Buying Investment Plan;
Following are the documents required to purchase an investment plan:
Income Proof: Recent salary slips, bank statements, income tax returns, etc. along with a passport size photograph with relevant medical records.
Address proof: You can use license, Aadhaar card, passport, or Voter ID card as address proof.
ID Proof: PAN card, Voter ID card, Aadhaar card can be used as ID proof.
Age Proof: You can use Aadhaar card, Voter ID card, Driving License or passport as age proof.
Benefits of Investment Plans;
There are several benefits of adding investment plans to your financial portfolio. Some of them are:
Protection of Loved Ones: An investment plan provides you the dual benefit of life cover as well as returns. Simply put, in case of anything unfortunate happens to the life assured, then his/her family will receive the sum for which they were assured, plus the fund value, which can either be single or in monthly/quarterly/half-yearly payments. With the returns, the family can meet the requirements and monetary goals even if they are unable to earn a living or in case of misfortune event of death of the breadwinner of the family. Investment plans play a significant role in ensuring the financial protection of your loved ones even in unfortunate situations.
Wealth Creation: Not only savings, but investing in the right option helps you multiply your wealth too. It allows you to create wealth in the long term by making a disciplined as well as periodic investment. One of the sure shot ways to accumulate wealth over a period of time is investment plans with life insurance. You, as an investor, can choose the best option on the basis of your risk, disposal amount, as well as returns. You might require funds in the future for a child's education, marriage, pension, retirement, etc. when these plans would come into use. Investment plans will help you create wealth for your future purposes.
Life Cover: Every investment option does not offer death risk coverage option, but investment plans by life insurance do include death coverage. This lets you take care of your family even when you are not there. In this case, the nominee gets the sum assured in the misfortune event of death of the policyholder. Investment plans allow you to secure yourself as well as your family members against uncertainties of life and prevent you from facing financial inconvenience in adverse situations. Life cover under investment plans is the ultimate support you need apart from the investment to prevent financial struggles even in the most testing times.
Tenure Flexibility: There are several investment options in India which offer utmost flexibility when it comes to the money as well as the duration for which one needs to invest. In Investment plans, you get the option to choose the investment tenure as per your specific requirements. If you want to invest for a short period, you can choose a short-term investment option. Similarly, if you want to invest for a longer period, you can choose an investment option that lets you invest and accumulate wealth for multiple years.Tenure flexibility helps investors celebrate their wealth whenever they want.
Retirement Savings: Investment plans allow you to save enough funds that can be used after retirement. This way, you as an investor, need not depend on anyone else even after your retirement. You can be financially independent as you have the funds that you saved in the previous years. Moreover, with investment plans by your side, you can live your life like before, without feeling constrained or burdened due to financial instability. With the best investment plan you can enjoy an income post your retirement while dealing with unexpected eventualities after your retirement without stressing for a financial balance.
Tax Benefits: One of the major benefits of having investment plans is that they allow you tax deductions under Section 80C and 10(10D) of the Indian Income Tax Act. You can avail benefits on the premiums paid as well as payouts. While Section 80C allows premium paid to be deducted from the total income up to Rs. 1.5 Lakh, thereby reducing total taxable income and the actual tax paid, Section 10 (10 D) allows tax exemption on survival benefit, maturity benefit, and death benefit. So, investment plans not only help you save or multiply money, but offer even more financial protection in the form of tax benefits.
Loan Facility: Life insurance is a versatile investment. Apart from protecting the assured, it also acts as a loan facilitator. However, that is completely based on the coverage taken by the life assured, the premiums paid by him/her, the eligibility criteria for loan amount, and other factors. Taking a loan against your life insurance policy or your investment option can help you gain a high loan value. Quick availability of loan, loan security, and low interest rate are key benefits as well. It is advised to check the availability of loan facilities against the investment option beforehand. An investment option with a loan facility will secure yourself financially and attain your goals without any financial compromises.
Any person who is a resident of India and is aged above 18 years can buy an investment plan of their choice. When buying an investment plan, you need to fulfill the following eligibility criteria
Popular Investment Plans Insurers;
Name of the Company Assets Under Management 2020 (in crore)
Max Life Insurance ₹69,109.79
HDFC Life Insurance ₹1,28,173.98
Tata AIA Life Insurance ₹31,195.48
Pramerica Life Insurance ₹4,864.55
Exide Life Insurance ₹15,589.14
Reliance Life Insurance ₹20,288.79
Canara HSBC Life Insurance ₹15,396.44
Bajaj Allianz Life Insurance ₹56,185.89
Aegon Life Insurance ₹2,564.10
ICICI Prudential Life Insurance ₹1,52,203.27
Aditya Birla Sun Life Insurance ₹41,112.33
Aviva India Life Insurance ₹9,179.29
Bharti Axa Life Insurance ₹6,962.08
PNB MetLife Insurance ₹22,477.56
Star Union Dai-ichi Life Insurance ₹9,207.49
Life Insurance Corporation of India (LIC) ₹30,70,852.47
IndiaFirst Life Insurance ₹14,540.60
Ageas Federal Life Insurance ₹9,553.07
Kotak Life Insurance ₹34,727.20
Future Generali Life Insurance ₹4,387.07
SBI Life Insurance ₹1,62,289.36
Shriram Life Insurance ₹4,880.33
Sahara India Life Insurance ₹1,407.04
Edelweiss Tokio Life Insurance ₹3,126.77
Types of Investment Plans;
Following are different types of investment solutions which you can choose as per your financial needs and risk tolerance.
Unit Linked Investment Plans:
Unit Linked Insurance Plan (ULIP) is a mix of investment and insurance. In this plan, a part of the premium is deducted as insurance, and the other part is invested in the market. Funds are invested in bonds, market funds, equity, debts, as per the investor.
You can evaluate and track the investment of your funds as Net Asset Value (NAV). a survival benefit, you get maturity amount, whereas as a death benefit, the nominee will receive a sum assured.
Endowment Plans:
Endowment plan is a life insurance contract that pays in lump sum after a specific period of time on maturity, or on death. Generally, the maturity period is 10 yrs/15 yrs/20 yrs up to a certain age limit. This plan also pays you in case of a critical illness.
A combination of coverage and investment, the premium paid for this plan is divided into two parts. One is used as an investment and the other as risk cover. On maturity, returns are less, but guaranteed. In case of death, the nominee gets sum assured.
Money-Back Plans:
Money Back Plan is a traditional savings-oriented plan that is offered for a stipulated time period to provide death risk cover and returns. During this term, regular payouts are made, which are calculated as a percentage of the sum assured. These are done if the assured individual is alive then, and the remaining sum assured is paid on maturity. But, in case, the life assured dies during that term, then the full sum assured is paid irrespective of money back benefits that are already paid.
Retirement Plans:
A retirement plan, also known as a pension plan, is a plan wherein you can invest a portion of your pay and enjoy a normal salary after retirement when you suddenly stop receiving salary. It helps you accumulate your salary over a long period of time in order to have a secured financial future.
There are 8 types of pension plans in the market to cater different requirements of individuals, including deferred annuity, immediate annuity, annuity certain, and life annuity.
Child Investment Plans:
A child investment plan is a mix of investment and insurance that helps you to meet the rising cost of your child’s education as well as other requirements at the right age. So, instead of buying child education plans, you can choose to buy a child investment plan in order to secure and protect the future of your child.
The plan offers life cover as lump sum payment at the time of maturity. Also, these plans offer coverage to your child with flexible payouts at intervals for child’s education.
National Saving Certificate:
National Saving Certificate or NSC is a government-backed fixed income investment scheme that can be purchased by any Indian resident from a post office in India. These are issued in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000, and Rs. 10,000.
There is a fixed maturity period of 5 years for NSC, and there is no restriction on the maximum limit for its purchase. But note that only investments up to a maximum of Rs. 1.5 Lakh are eligible for tax benefits under Section 80C.
National Pension Scheme:
National Pension Scheme is a long term investment scheme for retirement, regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and central government. Available for all citizens, NPS is valuable for those working in the private sector and need regular post-retirement pension. Flexible across all occupations and locations, NPS offers various tax benefits as well under Section 80C and Section 80CCD (1B).
Mutual Funds:
Mutual fund is an open-end professionally managed investment fund that collects money from different investors (individuals and institutional investors) to buy securities. The pooled investment is managed by a fund manager, who is a finance professional.
he/she buys securities like bonds, stocks, etc. as per the investment mandate. With mutual funds, you can choose to invest periodically in small amounts, which are bought and sold as per the prevailing Net Asset Value.
Tax Saving Mutual Funds:
Of all the mutual funds, there is one that offers tax benefits to the investor, which is Equity-Linked Savings Scheme (ELSS). As it is a long term equity mutual fund, it helps you maximize your returns over a period of time.
The minimum lock-in period for this mutual fund is 3 years and minimum investment is of Rs. 500. ELSS offers you long term capital growth even in case of market volatility. By investing in ELSS, you can avail tax deductions of up to Rs. 1.5 Lakh in a year, under Section 80C.
Bonds:
Bond is one of the types of debt investments that allows the investor to loan funds to an entity, which can be an organization or the government, that is looking to borrow money for a specific pre-decided term, at a particular rate of interest.
The money is lent in exchange of a bond, in return of which, the issuer is obliged to pay interest on the principal amount the issuer shall repay the borrowed money with a fixed rate of interest on that amount. These days, variable ROI is also common.
Public Provident Fund:
One of the most popular savings and investment options in India, Public Provident Fund (PPF) is a long term investment option that offers an impressive rate of interest and returns on the invested sum.
The good news is that the interest earned and returns will not be taxable. In fact, you can also avail tax benefits under Section 80C of the Income Tax Act, 1961. A PPF has a minimum tenure of 15 years, up to 5 more years. Also, note that the government generally reviews the interest rate on the PPF after every quarter.
Fixed Deposit:
Fixed deposit or term deposit is one of the most secured and preferred choices of investments. It offers a constant rate of interest during the chosen term. So, the investor knows exactly about the returns he/she will receive at the time of maturity. It is mostly opted by people who don’t want to take risk with their investment.
The interest may vary with different financial institutions though. Apart from regular FDs, there are tax savings FDs too, which helps lower the overall tax liability for up to Rs. 1.5 Lakh.
Best Investment Plans;
1 Year Investment Plans;
If the investor is looking to invest for a short period of 1 year, then it implies that he/she has a short term investment horizon. For them, it is recommended that they should not invest in equity options.
Here are some of the best options that one can choose to invest for 1 year.
Arbitrage Funds: (Most Suitable For) It is ideal for investors who are looking to invest for 1 year or more. It offers 8% interest to the investor.
Fixed Deposits: (Most Suitable For) It is another short term investment that offers the investor an interest of around 6.5%, which may vary with different banks or financial institutions.
Recurring Deposits: (Most Suitable For) Recurring deposits are recommended for investors who want to invest on a monthly basis.
Fixed Maturity Plans: (Most Suitable For) It includes diverse constant earning instruments such as corporate bonds, treasury bills, etc.
Post Office Deposits: (Most Suitable For) A preferred mode of investment for many, post office deposits allow the investors to invest for 1 year, 2 years, 3 years, and 5 years as per their requirement.
Debt Funds: (Most Suitable For) Debts funds are suitable for people who are looking to invest for daily profits. One can earn a steady interest income and capital appreciation with debt funds.
3 Year Investment Plans;
Another short term investment option is to invest in plans that come for a period of 3 years. These are best suitable for people who want to get high returns within a short duration.
Some short term investment plan for 3 years include the following:
Liquid Funds: (Most Suitable For) These are best suitable for people who wish to returns between 4%-7%
Recurring Deposits: (Most Suitable For) These suit the best investors who want to invest on a monthly basis.
Fixed Maturity Plans: (Most Suitable For) These are similar to FDs but come with a lock-in period of 3 years.
Savings Account: (Most Suitable For) It is best suitable for people who are looking forward to 4-7% of returns.
Arbitrage Funds: (Most Suitable For) Suitable for investors who want to invest for more than 1 year.
5 Year Investment Plans;
Investment plans for 5 years offer higher returns than investment plans for 1 year or 3 years. One of the suitable choices for 5 years investment are ULIPs. Initially, the locked up period for ULIPs was 3 years, but the (Insurance Regulatory and Development Authority of India) IRDAI has increased it to 3-5 years.
Some of the best ULIP plans to invest in 2021 include HDFC Click to Wealth Plan, Edelweiss Tokio Wealth Plus Plan, Bajaj Allianz Goal Assure, ICICI PruLife Smart Kid, CanaraHSBCLife Invest 4G Plan, and ICICI Prulife Signature. Other short term investment plan for 5 years are as follows:
Liquid Funds: (Most Suitable For) Investors can invest in liquid funds to get interest rate of around 7%
Savings Account: (Most Suitable For) Savings account is suitable for people who are looking for liquidity with 4-7% returns
Post Office Time Deposit: (Most Suitable For) It is most suitable for people who are looking for high liquidity with interest rate of 7%
Large Cap Mutual Funds: (Most Suitable For) These offer impressive returns between 8%-13% and one can choose it for terms of 3-5 years
Things to Check Before Investment Planning;
Following are the factors that you must keep in mind before buying an investment plan:
Financial Goals:
Clarity about your monetary goals will help you decide what type of investment scheme you must buy. The goals may include buying a house, a car, marriage, child’s education/marriage, or building a corpus amount.
One of the investment options, ULIPs, can even help you meet your short-term goals like foreign trip, etc. In case you have a small family, or have just started with your career, then you can go for ULIPs to fund your short-term goals. Whereas if you are in your 40s or 50s, then endowment plans are recommended for you. So, before choosing an investment plan, it is essential to gain clarity about your financial goals.
Current Expenses Vs Savings:
The amount that an investor spends in an investment plan plays a major role in meeting the financial goals. If someone has more expenses than savings, then it may indicate that he/she may not be able to meet large short term goals with coverage plans. But if the investor does not have major expenses to meet, let’s say he/she lives in own house without having to pay any rent, then savings are likely to be more than expenses.
In this case, it is best to purchase an adequate life cover with return benefits and avail two in one benefit.
Future Expenses Vs Savings:
If the current expenses of an investor are lesser, then it does not imply that the future expenses will be less too. Sometimes, the current expenses may be nowhere as compared to future expenses. For instance, someone may have fewer expenses because their children are young now. However, major expenses may still be their way in coming years which may be due to child’s education or marriage.
In this case, the investor can go for an investment option that charges a premium for a few years and then pays enough that it can pay itself from the annuity or other regular benefits. Apart from this, investing a higher amount also lets you multiply your wealth for the future. So, planning future expenses as well as savings help you shortlist the plan to invest in.
Emergency Fund:
Investment plans not only cover your needs but also let you grow your wealth within the stipulated period of time. You can use this wealth to pay for major expenses anticipated such as purchasing a house, to pay for child’s education in upcoming years, marriage, or to meet daily expenses after retirement. This is possible with ULIPs including a child ULIP plan and endowment plans.
These plans help you meet expenses in the future. Also a child ULIP comes with a special feature called waiver of premium option which proves to be furthermore beneficial.
Desired Returns:
The returns offered by investment plans should be enough to take care of the investor in case he/she is unable to work anymore or to take care of the family in case of a misfortune event of death of the investor. The same goes with an insurance plan. It should offer the required cover as well as sufficient returns. The cover offered should be enough so that the life assured is able to provide for his/her family as well as themselves.
To understand the requirement of an investor, one must analyze their expenses in accordance with what a policy has to offer. If your cover is less than required, then ULIP and endowment plans are recommended for you as they ensure an increase in wealth by also offering much needed protection at the same time.
Number of Dependents:
The next thing to think of before choosing an investment plan is the number of dependents. This is because it also determines the sum assured an investor may require. The dependents may be spouse, children, siblings, parents, parents-in-law, niece, nephew, etc. If the investor only has a spouse and children as dependents, then he would require a lesser sum assured and vice versa.
In case the children are young, then they would require funds in future for education or marriage. Hence, it will be easier to choose a plan when the number of dependents are taken care of.
Eligibility Criteria to Buy Investment Plan;
Any person who is a resident of India and is aged above 18 years can buy an investment plan of their choice. When buying an investment plan, you need to fulfill the following eligibility criteria:
You will be required to meet the eligibility criteria as specified in the policy wordings
You must fall under the age criteria to be covered under a particular plan
You must agree to the premium payment mode as well as term of a particular investment plan
Use this link for Frequently Asked Questions [FAQ’s] on Investment-cum-Insurance policies.
Terms and Conditions:
*Standard T&C Apply. For more details on risk factors, terms and conditions, please read the sales brochure of respective insurers carefully before concluding a sale. Tax benefits are subject to changes in applicable tax laws. For detailed communication on sales contact below authority.
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Insurance Advisory Club
IRDAI Licensed Agent
- Mr. Dheeraj Bodduna
Financial Advisor
Contact: 85220 66133
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**For any queries, fill the Contact form at #Homepage>Menu>ContactForm or email your query at dheeraj.tatainsurance@gmail.com**