Planning your finances for your present and future is considered to be one of the best and smartest decision you will ever make. If you desire to protect your loved ones from unexpected occurrences that normally happens in real life, it is important that you keep yourself ready, financially, at all times. One of the safest ways to do this is through making investments that do not only provide security but can also be used as savings. This is the main reason why insurance-based savings offered by banks or agencies all over the world exists. You may have already heard about this type of plan but doesn’t completely understand the benefits and the possible financial risks involved with it. To make it a bit easier for you, we are breaking down the definition, and the most common benefits and risks of insurance based savings plan in this article so make sure to keep on reading. What is an Insurance Based Savings Plan? An Insurance Based Savings Plan is a commercial contract agreed by both insurer and policy owner and is legally binding for both parties. In other words, the insurance company is obligated to fulfill the policy owners rights and vice versa. Understanding your rights and obligations as a financial consumer is as important as paying the right amount of premium at the determined validity period. Upon entering an agreement, it shall be stated whether you are in an insurance plan that acts as a savings plan or not. If you do sign an agreement that serves as an insurance-based savings plan, it would mean that you and the insurance company agrees that if you live long enough up to the duration of coverage of your plan ends, you will be paid by the company a sum of money. What are the benefits?

• Secured Savings and Future. This is the most obvious benefit that insurance-based savings plan provides. Aside from giving you insurance on things like basic life, accidental death, and accidental dismemberment, there are banks that offer free life insurance coverage if you open a save up account with them as well. They also offer convenience by not requiring medical checkups or premium payments to qualify for their insurance.

• Flexibility. Some insurance savings plans do not only guarantee security for your family but also provide great flexibility when it comes to withdrawing money from your policy. They are the ones who will not require for you to surrender your policy even if you have to withdraw money to support major or minor expenses in your life. There are also insurance companies that offer online term plans which have been a trend for young investors recently. They do not just cover life insurance, but they also offer benefit by regular monthly income or increasing monthly income depending on the investor’s choice. These terms are very useful if you’re planning to purchase a house, investing in your child’s education, marriage, or for your future comfortable retirement.

• Tax Benefits. Life insurances are not taxable. The cash value accumulated and any amount of dividends can be tax-deferred as well. Policy loans are not taxable as well which is an advantage if you're into growing your cash value.

What are the risks?

• Expensive. Even if its savings based, this type of plan can be expensive which can be a little painful in your pocket. Some insurance companies will require you to pay a certain period before you can even take advantage of your policy. This is the reason why its necessary to read all the fine prints when purchasing this plan to make sure you are getting the benefits you expect to receive.

• Not a necessity. Since you’re in an agreement of availing an insurance and savings at the same time, the cost of premiums will be much higher and the policy can be very tight compared to having just a savings account alone. What we’re trying to say is, if you’re financially stable with no debt and can afford to save up and pay for burial costs and other emergency situations, an insurance isn’t really necessary. Now if you do have dependents who rely on your income, an insurance-based savings plan is the best way to go.

Written by Tax Professionals