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What are Child Plans?


Once you become a parent, your life revolves around your children. We do everything we can to make sure that our little sweethearts – our kids get the best in life. Right from the softest diapers, the cutest bag-packs to the best possible education and eventually the wedding of their dreams. For which, you save up, you invest, but are you saving smartly?

A Child Plan is a combination of a life insurance plan and savings plan. The savings aspect makes sure that you build a corpus over the long term and get good returns. You can pre-define the stages when you would need these returns, for instance, when your child gets into high school or college or when they get married. The Life Insurance aspect ensures that your child’s finances are taken care of by the life cover, in case of your unfortunate demise.

A Child Plan is a financial tool which helps you plan a secure future for your child. It makes sure that financial insecurities do not come between your child and his dreams even when you’re not around.



What does a Child Plan offer?



Long Term Protection

Life Cover

Get a Life Insurance Cover to secure your family’s financial future.

Long Term Protection

Waiver of premium Benefit

Get future premium waived off in case of the unfortunate demise of the policy holder.

Tax Benefit u/s 80C

Tax Benefits

Avail dual tax benefits u/s 80C & 10 (10D) of Income Tax Act, 1961



Peace of Mind

Systematic Withdrawals

Pre-define the stages when you would need the returns.

Peace of Mind

Accrued Bonus

Get accrued bonus on long-term savings as per the terms of the plan

Financial Stability

Loan Facility

Meet immediate and unforeseen liquidity requirements

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Why do you need a Child Education Plan?




Getting a degree from the best educational institute requires a strong financial plan. An IIM Ahmedabad course fee has risen by 4 times in the last decade crossing the Rs 20 lac mark. If it keeps on growing at the current rate of 20% per annum, it will easily cross Rs 1 crore ten years later. The tuition fee for an under-graduate engineering student at IIT today is Rs 2 lakh per annum. It is hundred times more than what it was thirty years ago, and is expected to touch Rs 10 lakh per annum figure in the next five years. As per another 2018 report, an MBBS degree from a private college which now costs about Rs 25-30 lakh will go up to Rs 50 lakh over the next 10 years. So, if you want your child to graduate from a premium institution then not only should be your child bright enough to qualify, but you need to be rich or save systematically to pay for the classes.

When it comes to your Child’s education, it is a must to start saving as early as possible; to be financially prepared to support your Child’s dream. You could save up little by little every month, build up a fund over the long-term or you could start saving with a Child Education Plan, which not only gives guaranteed returns on your savings but also offers you a life cover. You can choose to get returns at important stages of your Child’s life. And you can make sure that your child gets the benefits of the Child Plan even when you’re not around, with the life cover it offers.

So, yes. You do need a Child Education Plan.

Types of Child Insurance Plans

Child Endowment Plans

In Child Endowment Plans, your funds are allocated into multiple debt products. While the returns on such an investment are not big, there is guaranteed security for your money due to low risk.


Benefits of Child Endowment Plans


Less Risk

While savings for your child’s education, certain short-term investments may give higher returns, however, a child endowment plan is comparatively less risky than them. While other investments are subject to market risks, a child endowment plan is subject to no such conditions. Hence, this is a much safer investment for a family.

Tax Benefits

Along with saving for the future of your children, choosing a child endowment plan also lets you avail tax benefits. While planning for your taxes, it is advisable to choose instruments that serve two purposes: not only would they help you save tax but would also provide the long-term benefits in terms of savings or protection, in line with your financial plans.




Guaranteed Returns Plans

As the name suggests, a guaranteed returns child plan gives you an assured amount back on completion of the maturity period. A guaranteed return plan is a safe and assured way to save for your child’s future and does not involve high investment risks.


Benefits of Guaranteed Returns Plans


Flexible premiums

A guaranteed returns child plan makes provisions for flexible premiums. Based on your income and liquidity levels, choose the amount and mode of premium payments.

Flexible time period

You can choose the maturity period of a guaranteed returns child plan based on your child’s age and the purpose for which are saving. This allows every parent to buy a plan which is most convenient for them and falls within their future plans, making it the best child plan for them.




Market Linked Plans

A Market Linked Child Plan such as a ULIP (Unit Linked Insurance Plan) is a life insurance plan with an additional feature of investing your money in the market for future financial goals such as your child’s education. This means that you get the dual benefit of protecting your family as well as saving for their future.


Benefits of Market Linked Child Plans


Flexibility

ULIPs let you choose the premium amount, as per your requirements. They also give you the option of selecting funds as per your choice. Many ULIPs also offer the possibility of increasing your premiums during your premium paying term depending upon your family’s needs.

Liquidity

No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account when you are in need of urgent funds.

Tax Benefit u/s 80c

Premiums paid is deductible from taxable income under Section 80C. The interest earned and maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Systematic Savings

ULIPs give you the benefit of putting aside a chunk of your income to save it for your child’s education and dreams in a systematic way.

Wealth Accumulation

ULIPs not only let you save your earnings, but also help in growing wealth by allocating it to market-linked funds.




Child Insurance Plans

Apart from savings and investment plans, it is very important that every parent has an adequate life cover to protect their child’s future.


Benefits of Child Insurance Plans


Single Premium Child Insurance Plans

With single premium child insurance plans, you pay a lump sum annual premium instead of monthly or quarterly payments.

Regular Premium Child Insurance Plans

Regular premium child insurance plans refer to investment cum life insurance plans that have a monthly or quarterly premium paying system.

Why ULIPs are Good Child Plans?




Tax Benefits with a Child Education Plan

Apart from the other benefits of a child education plan, tax benefits are sure an added perk.

Tax Benefits on child plan premiums paid :

Premiums paid towards child plans are eligible for deduction under section 80C of the Income Tax Act, 1961. You can claim a deduction from your taxable income for this. This deduction is up to Rs.1.5 lakh a year.

Tax Benefits on income from child plan :

The amount received at maturity of the child education plan, will be completely tax free under section 10(10D).

Child Education Plans – Myth v/s Reality


Myth 1 : Child Education Insurance Plans covers a child’s life. It is inauspicious to buy insurance in the name of a child.

Reality : Most child plans insure the life of the earning parent, and not the child. The benefit associated with child plan’s is that the child’s future dreams of pursuing higher education are fulfilled, in case of an untimely death of the parent.

Myth 2 : Child Plan ends if / when the parent dies.

Reality : The beauty of child education plans is that usually they come with a Waiver of Premium Option, which means upon an untimely demise of the parent, the future payable premiums are waived off, and the policy continues. There is no impact on the benefits due to be received at maturity of the child plan.

Myth 3 : The child insurance plan is suitable only for meeting the education costs for the child.

Reality : Child Education plans are designed to take care of the rising cost of education for your child. However, there is no restriction on the usage of the amounts received at regular intervals during the policy term and at maturity. Example – If you invested in a child education plan for higher studies, however, your child chooses not to pursue further studies and use the funds instead for other commitments, he / she may do so irrespective of the original goal it was intended for.

Myth 4 : The Child Insurance Policy locks in the investment for a long period.

Reality : Most online Child Insurance Plans are flexible when it comes to Policy Term. The policy term of most market linked child plans usually range between 5 to 25 years. This means the earning parent can withdraw money, either partially or fully, if required earlier than planned.

Tips by Experts

Here are some tips to Start Investing Early in a Child Education Plan

Invest Cash Received as Gifts

A new-born child received many blessing from relatives in the form of cash. This is the best source to kick-start the habit of investing regularly for your child.


Planning for Short-Term Goals

While saving for your child’s higher education or marriage should be the ultimate goal, there are many short term needs such as playschool and primary school admission, birthday parties, etc. that also need a considerable amount of funds. It is important to ensure that parents takes these expenses into consideration too.


Consider Inflation and Future Demands While Saving

When you start saving for your child’s education or wedding while he or she is a toddler, you may not consider the rate of inflation or the ever-growing needs of society. What would be the cost a decent university degree today will not be even close to sufficient once your child grows up. It is estimated with the current scenario that the average cost of MBA degree will be around ₹50-60 Lakhs until the year 2025. While the cost for an engineering degree will be around ₹25-30 Lakhs till year- 2025. Schooling cost could rise by 100% by 2025. Hence, it’s important to factor in future price rises while planning for your child’s future.


8 tips to buy the best Child Education Plan


  1. Start Early : As per a recent study, *61% parents wished they had started saving earlier for their child’s education. Frightening as it may seem, this is the reality. Even though we have Education Loans to our rescue, self – funding your little one’s aspirations is always a better idea and sure makes you proud.

  2. Factor Inflation : Monthly premiums for child plan’s start with as low as Rs.1000 per month. But before you decide how much to invest in your child education plan, take into account the changing economic factors. **While the Inflation in India is 3.43%, education inflation is about 10 – 12%. Hence, while investing in a child plan, it is important to calculate the fund you wish to accumulate keeping inflation in mind.

  3. Waiver of Premium Benefit : Most online child education plan’s offer either an in-built or an optional Waiver of Premium Benefit. This rider is important to be opted for while buying a child education plan. This is because in case of an untimely death of an earning parent, the future / remaining premiums payable to keep the policy going, are waived off without any changes in the benefits of the child plan taken during maturity.

  4. Joint Life Cover : Choose a child plan that provides a joint life cover to you and your spouse. This ensures that even in the case of an unfortunate demise of one parent, the child’s future is still secure as the other parent will still be insured. Edelweiss Tokio Life – Wealth Secure Plus is one such ULIP child plan that gives the option of choosing a joint life and joint life + child plan option.

  5. Systematic / Partial Withdrawals : It is a good idea to invest in a child education plan which has an option of either systematic or partial withdrawals during the policy term. This will give you the flexibility of meeting any unplanned expenses or medical emergencies where you may be forced to seek financial help.

  6. Choice of Funds : Basis your appetite for risk and a considerable time for investment, (at least 10 years), you should consider investing in more of equity or market linked funds v/s secured funds. It is suggested to stay invested in equity when the markets are bearish and move to a debt / secured fund, when the markets are volatile. This is in case of a self-managed portfolio. You also have an option to buy a child plan where the units are managed by the company’s fund managers, to bring you the best returns.

  7. Switching & Premium Redirection : This option allows you to switch between funds or redirect remaining premiums to other funds basis the stock market condition.

  8. No or Low Charges : While choosing for a child plan, you should consider the various charges such as policy administration charge, premium allocation charge, mortality charge etc. that are associated with various life insurance plan.