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Parents' goal of ensuring their child's future and financial security is an ardent desire. There are various ways to achieve this goal, as they all have one thing in common - creating savings accounts for kids will help establish this safety net, whether through investments in stocks, bonds , or fixed-income vehicles. However, insurance policies have emerged as one of the safest instruments that provide reliable returns and are worth exploring as potential solutions.Parents often struggle to determine the most appropriate insurance policy for their child, given the many companies offering various Child Insurance Plans . When faced with such a dilemma, taking matters into their own hands may be beneficial. Investing in child insurance provides future cash flows to fund education expenses. Let's explore the significance of this aspect and the primary criteria to consider when selecting the best Child Education Plan that aligns with your requirements.
Importance of a Child Education Plan
There are numerous advantages to purchasing a Child Education Plan. Here are a few:
1. Hedged against Rising Education Costs
With India's rapid economic development and technology integration into education, tuition costs continue to skyrocket as time passes and they grow. Therefore, you must set aside some amount that will grow at least at the rate of their costs.
2. Keep Your Child from Borrowing for Education
The rising costs of education and sluggish savings rates within Indian households have led many young individuals to seek high-interest loans to finance their further education, with the obligation to repay these loans upon the completion of their education. You can protect your child from this financial strain by enrolling them in a Child's Education Plan.
3. Realise Tax Benefits
Most Child Health Plans qualify as income tax deductible plans under Sections 80D, 80CCC(1), 10, and 10D of the Income Tax Act , giving you additional savings that can go directly towards premium payments for your plan.It could further increase your net income and allow you to reinvest it in premium payments for the plan.
4. Fund Availability
Some Child Insurance Plans provide periodic payments over an agreed-upon term, providing both policyholders and beneficiaries with access to funds that could help finance education or any expenses that might arise later in their lives.
Select the Appropriate Education Plan for Your Child
Choosing the best Child Education Plan requires thorough due diligence on all available policies. Doing this requires knowledge of key terms related to each policy and the ability to read between the lines. Let's explore these terms essential to choosing the best Child Education Plan :
1. Entry and Maturity Ages
Entry and maturity ages can differ significantly between plans; generally, an entry age can range between 30 days and eight years, while maturity ages range between 15 and 25 years. Planning for your child's future can help guide the selection process when choosing an investment plan best tailored to their needs; for example, understanding at what age they require your financial help is an integral factor when making this choice.
2. Maturity Benefits
It is also important to examine maturity benefits closely when comparing Child Education Plans.In this context, the primary consideration should be the sum assured. Compare the payout upon maturity as an inflation-adjusted sum and ensure it covers your educational costs and any future expenses your child may incur.
3. Type of Plan
Child Education Plans can be divided into two segments, depending on the nature of payments:
Endowment Plans:
These provide either a lump-sum maturity amount or monthly payments over time. Premiums paid towards fixed-income securities direct the endowment coverage based on profits accumulated.
Market-linked Plans:
These are plans in which the maturity amount depends on market performance. One example of such a market-linked product is Unit-Linked Insurance Plans . These schemes allocate a portion of the premium to equity and debt products, offering higher risk and return potential. Therefore, if you have an investment horizon of more than ten years and an aggressive risk profile, consider these schemes as potential investment vehicles.At maturity, most plans offer lump sum payments; however, some offer split instalments to your child at different times. These plan categories also offer ULIP options.Also read: Benefits of ULIP
Child Education Plans:
When choosing an insurance plan for your child, consider its payment options, as they can also be divided into two parts based on the periods of premium payments. This consideration should aid you in making an informed decision regarding Child Education Plans.
- Lump Sum Payment: Certain plans require a lump sum premium payment at the time of policy inception.
- Periodic payments: While some plans require fixed periodic payments, others do not.
4. Death Benefits
Child Education Plans offer death benefits if either parent dies during the policy tenure, with benefits that vary by plan. Having a premium waiver benefit in any policy ensures that, should an emergency arise preventing payment, your beneficiary (child) won't need to worry about paying premiums they might otherwise have to continue paying.
5. Partial Withdrawal or Loans
Some Child Education Plans offer partial withdrawal or loan options that allow you to withdraw a portion before maturity; however, typically, there is a lock-in period during which no withdrawals may occur. Furthermore, some plans allow parents to take out bank loans against the maturity amount for additional savings opportunities for their child's education plan. These features make child education policies invaluable investments.
6. Selecting Add-Ons Carefully
It is crucial to make an informed decision by reviewing all available add-ons and features when purchasing Child Insurance Plans. Here are a few such features to keep an eye out for and compare:
- Premium Waiver When an insured event triggers a premium waiver, it can relieve them by not having to pay their insurance premiums directly to their insurance company.
- Disability Rider A disability rider is a clause in your policy indenture that ensures financial support from an insurance provider should something go wrong or unexpectedly happen to you.
- Critical Illness Coverage Critical illness coverage offers additional financial protection should one be diagnosed with a critical illness, in addition to coverage provided through their health insurance plan .
System of Child Education Plans
Child Education Plans work the same way as any Life Insurance Policy , whether purchased online or through an agent. A premium is calculated over an agreed-upon period and is then paid out in one lump sum at maturity to its beneficiary, your child. Alternatively, periodic repayment policies offer fixed amounts at regular intervals after maturity.Also read: Why You Must Have A Child Insurance Plan?
FAQS - FREQUENTLY ASKED QUESTIONS
Are there Any Add-On Fees or Extra Costs for Add-Ons ?
Yes, Add-ons will incur extra costs and should be treated as extras when purchasing them. These costs, though minimal in comparison with their benefits in times of adversity, often outweigh them, so it is wise to have several essential add-ons in your policy; they could come in handy when needed most. The policyholder can purchase these add-ons by paying an affordable monthly premium fee.
When is the right time to start planning ?
Planning early is always best because starting later will only add a financial burden for both of you. Don't delay when securing your child's future; begin early to ensure maximum coverage at lower premium costs while your child is young, as premium costs rise with each year of life coverage they accumulate.
Which plan would be more advantageous: an Endowment Plan or an Equity-Linked Plan ?
Both plans offer competitive risk-adjusted returns. Selecting between them depends on your risk appetite; higher risks provide greater return potential. Endowment Plans tend to be low risk, having low or no equity exposure and investing primarily in fixed-income securities, while equity-linked plans focus on risky assets like equities while having both fixed-income securities and equity holdings within their portfolios. Selecting one that fits with your risk appetite is optimal. Higher-risk appetites require investing in an equity-linked plan, while low-risk endowments could be better suited. High-risk needs would work by investing in an equity-linked plan, while low-risk appetites might opt for an endowment plan or vice versa.
Will I see any savings with the plan ?
Many insurance providers offer incentive bonuses to policyholders who make timely premium payments. Bonuses begin accumulating in your maturity corpus after paying a specific number of premiums - these may come as reversionary, in-kind, or upfront cash payments.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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