Guaranteed Return Plans: Meaning, Features & Details

We often plan savings and investments to satisfy our future goals, including our children’s education, purchasing a home, or planning the golden years of our lives. Though there are many savings plans and investment options available, we often neglect to invest our hard-earned money because of market volatility. However, in this case, a guaranteed return plan comes to the rescue. 

A guaranteed return plan is a great choice, as it provides a fixed interest rate along with a higher return rate to investors. Individuals investing in these plans may yield a return rate of 6% to 6.5%, which is higher as compared to other options. Read on to find out more about the meaning and workings of guaranteed return policies. 

What is a Guaranteed Return Plan?

Guaranteed return plans are non-participating monthly income schemes offered by banks and other financial institutions. Under these plans, the policyholder pays an annual premium throughout the policy tenure. The insurer decides the policy duration depending on various factors, including age and financial position. At the maturity of the policy, the policyholder begins to receive guaranteed payouts similar to the monthly revenue generated by the policyholder. The payout value may vary depending on the insurance coverage, premium amount, and the sum assured of the plan. Henceforth, the premium payment period and payout duration are both covered in the policy tenure. 

Key Features Of Guaranteed Return Plans

Listed below are some of the features of investing in guaranteed return plans. 

• If the policyholder has finished paying the premiums, the plan guarantees that they will receive monthly income payouts for a predetermined period of time. According to the Income Tax Act of 1961, the income received from the plan is tax-exempt.
• In most cases, the payout period for the guaranteed income plan is divided into two main sections. The policyholder receives the monthly assured income in the first section. The monthly income doubles once the first six months of the term are completed. 
• Generally, the beneficiary of a guaranteed income plan has the choice of selecting their payout type if the policyholder dies within the term of the plan. You can choose to receive the benefits as a lump sum or as an income for ten years following the demise of the policyholder.
• As soon as the premium payments are completed, the policyholder will start receiving monthly payments for the amount assured.

How Do Guaranteed Return Plans Work?

A guaranteed income plan is a traditional savings plan that provides insurance coverage along with guaranteed returns in the form of monthly payouts. Firstly, an individual needs to understand his or her present financial condition and plan their future goals to choose the policy period and payout options of the policy. 

Most importantly, policyholders should understand their financial objectives so they know how much premium they have to pay. In the event that the policyholder chooses the low policy tenure with a huge savings amount, it will result in paying a higher premium. Guaranteed income plans provide the flexibility to choose payout options from monthly, annual, quarterly, or semi-annual. The guaranteed return plan works on the power of compounding and is most suitable for people who have started planning for their future. 

Conclusion 

Guaranteed-return plans are the best source of investment for individuals who want to create wealth with little or no risk involved. Apart from providing fixed returns periodically, these plans provide various other benefits, including maturity benefits, death benefits, and a sense of security to you and your loved ones at each stage of your life. If you are looking for a risk-free wealth creation plan, then guaranteed return policies would be an ideal choice for you.

Also read: Tips To Save Tax With ULIPs