Economics: Saving and Insurance: Benefits of Savings and Uses of Saving

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Saving

  • Saving is the amount of income which is kept aside to meet future needs after meeting the present needs or current expenditure on goods and services and other things. In short, saving is the surplus of income over consumption. We can write it as, Saving = Income – Consumption.

  • For example, Monika’s monthly salary is Rs. 40,000. Her expenses include Rs. 13,000 rent payment, Rs. 4,500 car payment, Rs. 5,000 student loan payment, Rs. 3,000 credit card payment, Rs. 2,500 for groceries, Rs. 750 for utilities, Rs. 750 for cellphone charges and Rs. 1,000 for miscellaneous expenses. Since her monthly income is Rs. 40,000 and her monthly expenses are Rs. 30,500 , Monika has Rs. 9,500 left over. If she saves her surplus income and faces an emergency, she has money to live on while resolving the issue. If Monika does not save her surplus income and her expenses exceed her income she will left with no money and if she faces emergency, she does not have money to live on.

Benefits of Savings

Increases Future Income

By saving the surplus income every month one can increases the future income.

To Face Emergency

If a person faces any emergency and has savings, he/ she has money to live on while resolving the issue.

Secured Future Plans

By saving every month a little amount of his income the person can secure his future plans without any difficulty and financial problems.

Where You Keep Your Saving

Keeping all your savings at home has no use, it should not be left idle. For taking care of your savings and have some return on it the society has provided institution where you can keep your savings. They are post offices and commercial banks.

Post Office Savings Bank

Now a days post office also provide the facility of saving account where an individual can keep his surplus income or money. Everyone can easily go to post office as it is located in every area. Any person can open a saving account in his/ her name in any post office by depositing a minimum Rs. 50 only. It can be open for any period of time and also can withdraw amount at any time with only one condition that Rs. 50 minimum balance should be left in the account. Post office also provides a nominal rate of interest on saving account.

Saving Account in Commercial Bank

A person who wants to save money can open a saving account in any commercial bank. The minimum amount necessary to open an account and minimum balance to be left after withdrawal of money are prescribed by the concerned bank where the person saves money. A bank allows a nominal rate of interest on the saving bank account.

Uses of Saving

Savings can be used for multiple purposes which are as follows :

Lending and Borrowing

A person having surplus money or saving can lend it to the borrower who needs it to meet present wants and repay the same amount in future.

Development of the Economy

When many individuals save money and deposit it with post office or banks, a very large amount of money becomes available for use of the society. This amount can be used for providing infrastructure facilities where whole country is benefited. So, saving by an individual eventually becomes useful in the process of development of the economy.

Interest as Return on Saving

Rate of interest is defined as the earning by the lender/ payment by the borrower for the use of every Rs. 100 given by lender to the borrower for a period of one year. The people keep their savings in the post offices and banks, so that they can earn interest on it. The post office offers around 3.5 % rate of interest while bank offers around 4% rate of interest per year to individuals.

Insurance

Insurance is a means of protection from financial loss. Anybody who thinks that he/she has some chance to incur loss/suffer damages to his/her belongings, he/she can have “Insurance” by paying some money. The seller of insurance is called “Insurer” and buyer of insurance is called “Insured”. The money paid by the “Insured” or buyer of insurance is called “Premium” which is paid for specified number of years. If any loss occurs during this period, the insured person get due compensation from the insurer.

Definition

A financial product which can be purchased to partly or fully recovered any loss happening due to event beyond the control of the insured partly.

Types of Insurance

Types of Insurance

Types of Insurance

Auto Insurance

It is insurance for Cars, Trucks, Motorcycles, and other road vehicles. It is used to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle. Premium amount of insurance depends on type and life of vehicle.

Health Insurance

Health insurance is a type of insurance coverage that pays for medical, surgical or total expenditure on medical treatment by the insured. It helps. To reduce the burden of the insured when he falls ill. Normally the premium of health insurance is low at younger age and high as the person grows older.

Life Insurance

Life insurance is a contract between the policy holder and the insurance company, where the insurance company pays a specific sum to insured individual’s family upon his death. The insured has to pay premium every month till the insurance period completes or till he is alive at a specified rate given by the company.

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