Insurance and investment are two primary components of a good financial plan. The purpose of insurance is to provide you with a financial security net on which you can fall in the case of an emergency. The purpose of investment is to grow your wealth and create a corpus to meet your short-term and long-term financial goals in the future.
So, if you’ve started earning, the first thing that you should do is keep aside a portion of your income for insurance and another portion for investment before anything else. Now comes the more important question that perturbs several people like you. Whether you should invest in separate insurance and investment plans, or should you opt for an insurance-cum-investment policy?
Another question that troubles many investors is whether a monthly income insurance plan is worth investing in or not.
Let’s discuss the pros and cons of such plans to determine a suitable answer to this question. But first, let’s discuss what is a monthly income plan.
What is a Monthly Income Plan?
A monthly income plan is a unique financial product that provides the dual benefit of insurance as well as investment. By investing in a monthly income policy, you will get the benefits of life insurance until the policy tenure. In case you survive the policy tenure, you will be provided with a regular monthly income for a fixed period.
Since the returns from a monthly income plan are fixed or guaranteed, it is also known as a guaranteed income plan. It means that the returns of these plans do not depend upon the performance of the underlying market-linked securities.
What are the Advantages of Investing in a Monthly Income Plan?
Now that you know what is a guaranteed monthly income plan and how it works, let’s discuss the advantages of investing in it:
- The returns are guaranteed
The foremost benefit of a guaranteed income plan is that the returns are fixed, and they are not dependent on market performance. So, even if the market fails to perform or shows a bullish trend, you will get the desired returns by investing in a guaranteed income plan. Your returns would be known to you at the time of buying the policy.
- Regular monthly income
When you invest in a regular income plan, a portion of your investment is used to provide you with life insurance coverage. The remaining amount of your investment is invested in fixed-income instruments to provide you with a regular monthly income once you survive the policy term. You can use this monthly income to meet your daily living expenses after your retirement.
- Dual benefits from a single product
As we have mentioned before, a guaranteed income plan is an insurance-cum-investment product. It means that you can get the dual benefits of life insurance and investment from a single product. This way, you can ensure the financial security of your loved ones and create a corpus for your future by investing your money in a single instrument instead of two separate ones.
The only con of a guaranteed income plan is that it does not provide high returns as compared to market-linked instruments. Although the latter are riskier, they can provide inflation-beating returns if you invest in the right combination of securities.
But if you’re a risk-averse investor who prefers wealth security over capital appreciation, a guaranteed monthly income plan should be a good choice for you. Moreover, it can be a very good financial tool for planning for your retirement.
Several insurance companies provide monthly income policies in India, but you should invest in the best one. For example, you can opt for the Tata AIA Life Insurance Policy that can serve your purpose well.