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Life insurance is crucial in securing your family’s financial future. However, pairing it with smart saving options can help your money grow and provide stability now while building funds for later.
This article analyses some of the best saving avenues to complement a life insurance policy, aiming to find the right balance of protection and growth for peace of mind. Read on to discover various saving plans, such as fixed deposits, public provident funds, mutual funds, and more.
Fixed Deposits for Stable Returns
Fixed deposits (FDs) are a secure way to earn interest on saved money. You deposit a lump sum with a bank or financial institution for a defined tenure. In return, they provide guaranteed payouts at a predetermined interest rate.
The returns are fixed, hence the name, so minimal risk or fluctuation exists. However, the interest rate is lower than that of high-risk investment options. FDs are best suited for conservative savers prioritising capital protection.
Pairing FDs with life insurance makes sense for many reasons:
- You know the exact maturity value, allowing better financial saving plans.
- FDs provide liquidity when you need it, thanks to flexible tenure options.
- The assured returns complement the long-term safety net created by insurance.
Public Provident Fund for Tax-Free Income
Public Provident Fund (PPF) is a government-sponsored savings scheme with attractive incentives. The tenure is 15 years, which can be extended indefinitely in blocks of 5 years. The government decides the interest rate every quarter, usually higher than FDs.
Apart from the competitive returns, PPF offers two significant benefits: it is exempt from income tax, and the maturity corpus is tax-free. This tax advantage makes it a great investment avenue for conservative investors in high tax brackets.
When used with life insurance, PPF creates a tax-efficient corpus for crucial life goals. It also covers the risk of premature death, providing comprehensive financial safety for your family.
Mutual Funds for Higher Returns
Mutual funds offer investment life insurance policy in equity, debt, gold, and other asset classes based on predefined schemes. They provide diversification with professional management by fund houses. The potential upside is higher than traditional saving options, but there is also a risk of capital loss.
Equity-oriented mutual fund schemes generate inflation-beating returns over a long tenure of 7 years or more. They carry higher risk than direct stock investments, but the portfolio approach reduces volatility significantly. This helps enhance wealth creation alongside the financial backup already in place via life insurance.
National Savings Certificates for Secure Tax Savings
National Savings Certificates (NSCs) are fixed-income instruments issued by the government’s India Post. Their highlight is the sovereign guarantee, which makes them secure. Like PPF, they also offer income tax refunds under Section 80C.
NSCs have a 5-year lock-in and pay fixed interest compounded annually. The interest rates are usually higher than bank FDs for similar tenure. The interest earnings are also eligible for a Sec 80C deduction to reduce tax liability.
Together with life insurance cover, NSCs create a safe earning base. The tax savings increase disposable income, which allows allocation to other investments, like mutual funds, for higher returns.
Employee Provident Fund for Retirement Corpus
Salaried individuals have another beneficial investment option via the Employee Provident Fund (EPF). EPFO manages it and involves a matching contribution from the employer and self-contribution capped at 12% of the monthly salary.
The retirement corpus is exempt from income tax, provided withdrawal happens after 5 years of continuous service. Premature withdrawals are taxed unless used for buying a house, marriage, or education. This influences disciplined investing for old-age income security.
EPF contributions secure the sunset years, while life insurance protects against unforeseen difficulties. Used tactically, they create a robust financial backup for themselves and family to overcome testing times.
Sukanya Samriddhi for Daughters’ Future
Sukanya Samriddhi Yojana (SSY) is a government initiative encouraging parents to build a fund for their daughters’ future education and marriage expenses. The account can be opened any time after the girl’s birth till she turns 10 years old.
SSY offers tax rebates with the highest interest rate among small savings schemes. The compulsory holding period is 21 years but can be extended indefinitely, as with PPF. Partial withdrawals are permitted after a girl turns 18 for higher education expenses.
With life insurance reserved for the daughter, SSY creates a protected investment pool custom-made to meet her needs in adulthood. This shows how tactical savings avenues add value to primary insurance.
Recurring Deposits for Steady Investments
Recurring Deposit (RD) accounts allow disciplined saving by depositing small fixed amounts periodically instead of a lump sum. This investment style aligns perfectly with salaried individuals’ monthly budgets and cash flows.
Banks allow flexibility in setting RD tenure from 6 months to 10 years—the invested amount compounds at an applicable interest rate similar to FDs. Many banks also offer loan facilities against RDs up to the prescribed limit.
RDs promote regular saving habits, while life insurance provides a sum assured to dependents in case of an eventuality. Together, they ensure financial stability at present and prepare for unforeseen events.
Equity Linked Saving Scheme for Tax Saving Investments
Equity-Linked Saving Scheme (ELSS) is a variety of equity mutual funds that qualify for tax refunds under Sec 80C. As regulations mandate, they have a shorter lock-in of 3 years only. Investors enjoy high potential returns linked to stock markets.
ELSS also carries higher risk since the underlying portfolio comprises listed company shares. However, the structured framework and professional fund management substantially reduce the volatility.
When complemented by the financial safety net of life insurance, ELSS creates a balanced, smart saving approach. The former covers significant liabilities via sum assured, while the latter channels surplus income towards wealth creation.
Conclusion
Life insurance and smart saving options must coexist proportionately for comprehensive financial fitness. One can achieve a balanced approach that ensures stability, growth, and liquidity by evaluating and combining various saving avenues with life insurance. Regularly reassess your asset allocation to optimise your financial plan, keeping the basics covered while taking calculated risks for wealth creation. The right mix of saving options paired with your life insurance policy can make your money work harder and provide flexibility as life progresses.
Contact PNB MetLife to learn more about saving plans.
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