Child Education Solutions - Insurance Plans

Child education plans are insurance-cum-investment plans (ULIPs) or guaranteed returns plans (money-back plans or endowment plans) that help to create a corpus for the child’s future, over a defined period. At the time of maturity, these plans pay out a lump sum to the child, which can be used to pay for education fees or marriage expenses.

How Does A Child Plan Work? 

A child plan can be an Endowment Policy, a ULIP, or a money-back plan. In a money-back plan, the child gets a lump sum survival benefit at regular intervals. These plans are helpful for people who need a lump sum amount at a time in the future. However, these plans do not offer significant returns. Hence, they might not be able to offset the impact of inflation, especially if you need the money for education expenses.

Secondly, a ULIP plan is an investment and insurance plan, where a part of your premiums is used to provide a secure life cover and the remaining portion of the premiums is invested in different market securities. The investment made is as per your life stage, risk appetite and financial objectives. In case of the demise of the parent, the child gets a lump sum amount. Moreover, all future premiums of the policy will be waived.

Thirdly, an endowment policy is a plan where you receive a lump sum along with bonuses. These plans are useful as they help create a corpus for higher education expenses, etc. However, these policies are different from ULIP plans as they offer a guaranteed return.

Benefits Of Child Insurance Plans
 

The future of your child is your prime responsibility and also a big reason for your worries. You want to provide the best education for your child. But given the steeply rising cost of education in the country, you will need a substantial amount of savings to cover your child’s higher education expenses. Hence, regular investments in the right plan can help you build a large sum over time. That said, apart from creating a financial corpus for your child’s education, you also need to ensure they are financially secure in case of your absence. 

With insurance plans tailored to provide specific benefits of your children, you get dual benefits. These plans combine financial protection for the child along with savings/wealth building that allows you to build a significant sum for the future. Here are some benefits of child insurance plans: 

• Covers immediate needs: Savings and insurance plans for children aim to support the regular needs of your child by offering money to help the family cover regular expenses like school fees, tuition costs, etc. 
• Reliable asset for the future: An insurance plan that covers your child financially secures your child by offering a lump sum benefit in case of your demise during the plan tenure. Further, the policy continues to exist while all future premiums are waived off. The premiums are paid by the insurance company and the money remains invested till the end of the policy term. At maturity, the money is paid to the child, which can be used to cover the education costs. 
• Disciplined investment for a child’s higher education: In a Guaranteed Returns Plan or ULIP, you invest regularly throughout the term of the plan as per your preferred premium frequency. If you choose a ULIP plan, you get a high return, owing to equity-linked market investments. As you approach maturity, you can change your investment into more secure ones like bonds. 
• Tax benefits: Besides offering the above-mentioned benefits, these plans also provide significant tax benefits. The premiums are exempt from taxes up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961. The maturity sum and the death benefit are tax-exempt at the hands of the nominee as per Section 10(10D). 

3 Reasons Why A Child Insurance Plan Is Essential 
 

A savings and insurance plan for your child is the foundation of their future. Here are three reasons why these plans are essential:

• Sponsor the education and development of your child: Education is a basic and critical need for your child. When it comes to education, you should not make any compromise. The better education you provide your child, the more equipped they become for prospects. But given the soaring cost of education in India, it is useful to invest in a child insurance plan. These plans allow you to create a fund that can be used to pay for your child’s education, higher studies, extra-curricular activities, and more.
   
• Creating a corpus for the future: As a parent, you would want to sponsor the marriage of your child, either fully or partly. On such a joyous occasion, you would not wish to compromise on the wedding functions and ensure everything is adequately done. You do not wish to be in a situation where you are unable to fund the marriage expenses. Moreover, you might want to gift a car or a bike to your child in the future or help them set up a business or leave behind a legacy for their future. With an insurance plan moulded for your child’s protection, you can cover these objectives more optimally. 
   
• Lead by example: As parents, you are the role model for your child. Your child learns from you and looks up to you to get a direction in life. The decisions you make as parents have a large influence on your kid. Hence, you must be financially disciplined and make prudent investments. A child insurance plan is one such investment that speaks of good judgement. When you set such examples for your children, you are helping them become smart individuals of tomorrow.
   

Conclusion

The cost of education in India is highly burdening. Given the current rate of inflation, it is prudent for parents to choose a wise investment plan to provide for their child’s education needs in the future. For instance, if your child desires to become an engineer in the future, you would want them to get the best possible education in the field. A good engineering institute presently costs around Rs 1 lakh. But in the coming 15 years, this would go up to ₹40 lakhs to ₹50 lakhs, assuming the average rate of inflation will be about 10% in the future.

And if your child wants to choose a private college, you can expect to shelve around ₹25 lakhs in the present. This would jump up to a crore in another 15 years.

Also read: Assured Child Education Savings Plan

Everything You Must Know About A Child Insurance Plan