Why Should Risk-Averse Investors Opt for Guaranteed Returns Plans?

Representational Image

Nowadays, individuals from the workforce do not entirely rely on their salaries for their income. Many working individuals have opted for different passive income streams to generate wealth while earning a stable salary. However, the stock market is a volatile place, and individuals must choose their investments carefully. Investing in volatile and high-risk instruments may lead to incurring heavy losses. Hence, individuals should make profitable decisions by opting for plans that offer low-risks and assured returns.

You can opt for a guaranteed returns plan from an insurance company of your choice. Insurance providers design these plans for investors with a low-risk appetite as one can earn an assured return from them.

What is a guaranteed returns plan, and how does it work?

A guaranteed returns plan provides the policyholder with maturity benefits with regular guaranteed payouts and assured life cover. These plans offer a stable income at a pre-determined percentage of the policyholder's sum decided when purchasing the policy. The plan offers the policyholders the dual benefit of life insurance along with regular payouts and maturity benefits. It acts as a savings and investment plan. The policyholder can also opt for getting the guaranteed returns from the plan through quarterly, monthly or yearly payouts. They will have to decide on payouts while purchasing the plan. This insurance product comes with bonus facilities, and the policyholder will not have to worry about the market's ups and downs.

Individuals who belong to the age group of 18-60 years and are looking for policies that extend from 10 to 30 years can opt for a guaranteed returns insurance plan. When the plan matures, the policyholder receives the simple reversionary bonus with the terminal bonus. If the payout period is around 15 years, the insured individual is paid the regular amount, which is a pre-defined per cent of the sum assured. If the policyholder passes away while the policy's term hasn't ended yet, their beneficiaries will receive the sum assured amount with the reversionary bonus and terminal bonus. If the policyholder meets their untimely demise after the policy term, the beneficiaries will get the sum assured with the other benefits.

This savings plan also offers tax deduction under Section 80(C) annually, and under Section 10(10D), the sum assured received on maturity is exempt from tax. Policyholders can also benefit from the inbuilt Accidental Death Benefit rider that comes with the plan.

Who are risk-averse investors?

A risk-averse investor is someone whose portfolio has low-risk investments. Such an investor chooses plans with known risks that offer moderate returns over a plan that offers high returns but has unknown risks. These investors analyze and understand the different risk levels associated with investments and choose the one that is the safest. Hence, guaranteed returns plans are an ideal fit for such investors, as these are long-term investments whose returns will not be marred by short-term fluctuations in the economy.

They would generally use risk management methods to opt for investments like debentures, index funds, government bonds, etc. Risk management involves using different methods that investors can use to mitigate the adversities, which result from different risks associated with an investment tool.

Why should low-risk investors go for guaranteed life insurance with returns?

It is advised that low-risk investors must opt for guaranteed income plans as these plans would provide guaranteed returns. Since a guaranteed rate of return from a plan will mean the risk involved is low and hence would fit the low-risk investor's financial objective. Through this method, the investor will be safe and get assured returns. However, investors must factor in inflation before opting for this plan.

Amidst the various plans available and after gauging the market's condition, opting for a guaranteed returns plan can be quite beneficial. These plans will provide individuals with assured returns regardless of the changes in market conditions and interest rates. When compared with FDs, the guaranteed return plans offer excellent returns on a tax-adjusted basis. These plans can help you build an adequate corpus while providing you with financial protection. It is advised that purchasing guaranteed return plans online can provide a wide range of benefits. Buying the plans online will provide you with an additional payout on the invested corpus, compared with the plans bought offline.

Conclusion

In today's world, it is important to have other income streams and a stable salary. In an attempt to lower the investment risk, many investors opt for guaranteed returns investments. One of the guaranteed returns insurance plans that insurance companies provide is the endowment life insurance plan which functions as a savings and investment plan. These endowment plans offer guaranteed returns to the policyholder and are perfect for low-risk investors.