Guaranteed Savings Plan vs Guaranteed Income Plan: Which is better for tax benefits, loan and withdrawals?
Choosing between a guaranteed savings plan and a guaranteed income plan can be tricky as they both offer financial security. However, it could be beneficial to analyse them on parameters, such as tax benefits and loan facilities, before investing.
Both a guaranteed savings plan and a guaranteed income plan offer financial stability in the long-run. Both the plans have become preferred choices for investment among investors due to secured return. However, it is essential to weigh on the advantages and disadvantages that come with purchasing either of these plans.
Therefore, the choice between a guaranteed savings plan and a guaranteed income plan should be based on your financial needs, investment tenure and the benefits you want the most.
What is a Guaranteed Savings Plan?
A Guaranteed Savings Plan (GSP) refers to a non-participating life insurance plan, which means that the beneficiary has no role to play in the investment related matters as the insurance company is responsible for the funds provided. Moreover, these plans provide an endowment assurance at a predetermined amount.
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Under the Guaranteed Savings Plans the policyholder needs to pay the premium for a fixed tenure and thereafter, they're entitled to all the benefits at maturity. These plans offer an assured return with a fixed annual rate of interest. However, the insurer might also provide other perks, such as maturity bonuses and loyalty rewards. These plans offer the dual benefits of savings options and insurance coverage.
What is a Guaranteed Income Plan?
A Guaranteed Income Plan (GIP) is a type of life insurance plan that provides regular payouts after a predetermined period. It doesn't offer short-term maturity like many other investment plans. The minimum maturity period stands at 10 years while the maximum is 30 years. After maturity, it ensures the payment of a fixed amount periodically to the policy holder. Such plans serve as a good source of income after retirement. It offers maturity and death benefits.
Guaranteed Savings Plan vs Guaranteed Income Plan: Which is better?
Let’s take a look at two plans based on tax benefits, loan facilities, and withdrawal schemes to know which could fit your needs better.
• Tax Benefits: Both these plans provide tax benefits under Section 80C of Income Tax Act, 1961. Policy holders can claim deductions up to Rs 1.5 lakh in a financial year for the premium paid amount. Moreover, the maturity amount of GSP is tax-free under Section 10(10D) of the Income Tax Act.
• Loan Facilities: You can avail a loan of up to 80 per cent of the sum assured amount in a guaranteed savings plan. On the other hand, no loan can be availed under a guaranteed income plan.
• Withdrawal: Both plans don't offer premature withdrawal facilities and one has to wait till the maturity of the plan to enjoy its benefits.
Though the investment in any of these two plans depends on the financial goals and objectives of the investor, investing in a guaranteed savings plan could be beneficial.