Child plan or child insurance plan are any Guaranteed Returns Plans (endowment or money-back plans) or Unit Linked Insurance Plans that help you save a corpus for your child. 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.
Child-centric insurance plans are 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.
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.
What does a child plan offer?
Get a Life Insurance Cover to secure your family’s financial future.
Get future premium waived off in case of the unfortunate demise of the policy holder.
Avail dual tax benefits³ u/s 80C & 10 (10D) of Income Tax Act, 1961
Pre-define the stages when you would need the maturity benefits³
Get accrued bonus on long-term savings as per the terms of the plan
Meet immediate and unforeseen liquidity requirements
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.
Child plans denote Savings plans or ULIP plans, whereas a term policy is a pure life insurance plan that guarantees a death benefit if the policyholder dies within the plan tenure. Post this, the plan ceases to exist. There is no maturity value offered by term plans in case the policyholder survives the term.
Alternatively, in insurance policies for children, the death benefit is paid upon the demise of the policyholder but the policy continues to exist. Moreover, the plan pays out a maturity benefit in case the policyholder survives the tenure.
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 20-25 lakh mark. The tuition fee for an undergraduate engineering student at IIT today (in 2020) is Rs 2-3 lakh per annum. An MBBS degree from a private college which now costs about Rs 25-30 lakh. 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.
A child education plan is a combination of investment and insurance. It will help them focus on their career without worrying about finances even in your absence. The returns would be sufficient to help your child meet his future needs even when you are not around.
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 insurance plan. You can choose to get returns at important stages of your Child’s life.
You can trust ETLI to be your partner in securing your child against financial uncertainties. Here are some reasons that make us a reliable partner:
Quick claim settlement process
Branches offering easy access
Agents providing consistent support
Investments assuring assured returns
Edelweiss Tokio Life Insurance does not offer a separate child insurance plan segment. We offer unique ULIPs and Guaranteed Returns Plans that offer specific features for securing the future of your child.
Child insurance plans, i.e. ULIPs for children or savings plans for children, help you safeguard the future of your child. Given the rising education costs in the country, it is wiser to plan for your child’s education well in time. As per the “Household Social Consumption of Education in India” report, education expenses create a huge financial burden on households. This creates a situation where education beyond the secondary level nearly becomes unaffordable for most working-class people.
By investing in an insurance plan for your child, you secure your child against future uncertainties as well as build a corpus to fulfil expenses like sponsoring your kid’s education. In case of an unfortunate event leading to your demise during the tenure, the insurance plan will pay a lump sum death benefit to help your child cover the immediate needs as well as continue investing on the behalf of the insured. Moreover, the plan also waives all premiums in such cases.
Let us understand this through an example:
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 ₹20 lakhs mark. If it keeps on growing at the current rate of 20% per annum, it will easily cross ₹1 crore ten years later.
The tuition fee for an under-graduate engineering student at IIT today is ₹2 lakhs per annum. It is hundred times more than what it was thirty years ago, and is expected to touch ₹10 lakhs per annum figure in the next five years.
As per another 2018 report, an MBBS degree from a private college which now costs about ₹25-30 lakhs will go up to ₹50 lakhs 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 ULIP or a Guaranteed Returns Plan for your child’s education planning. These plans not only give guaranteed returns on your savings but also offer 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 Insurance Plan even when you’re not around, with the life cover it offers.
So, yes. You do need a Child Education Plan.
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).
A savings and insurance plan for your child is the foundation of their future. Here are three reasons why these plans are essential:
Apart from the other benefits of a child education plan, tax benefits¹ are sure an added perk.
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.
The amount received at maturity of the child education plan, will be completely tax free³ under section 10(10D)
If you have opted for a ULIP investment, the maturity payouts are tax-free if the total annual premiums paid are below ₹2.5 lakhs. If the annual premiums exceed ₹2.5 lakhs, then the maturity payouts will be taxed as Long Term Capital Gains.
In 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.
As the name suggests, a guaranteed¹ returns child plan gives you an assured amount back on completion of the maturity period. A guaranteed¹ return plan is a safe and assured way to save for your child’s future and does not involve high investment risks.
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.
Apart from savings and investment plans, it is very important that every parent has an adequate life cover to protect their child’s future.
Selecting the right insurance plan for your child’ protection is a critical investment for the future of your child. You can use these steps to find the ideal plan for your child:
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.
These numbers depict an urgent need to make a smart investment for your child. With a strong corpus, you will be able to fund the education expenses of your child, which primarily include:
Moreover, these expenses differ and consistently grow as your child advances in age and further their aim. Primary education costs are lesser than secondary higher education. Boarding school expenses are much higher than normal schools. Moreover, the sharply rising inflation is another concerning factor.
The expenses of higher education in India
The expenses of medical education in India
The expenses of commerce, arts and humanities education in India
The expenses of engineering education in India
Engineering in India is renowned worldwide, even in the developed nations like the U.S. A typical four-year engineering course will cost anywhere between ₹1.25 lakhs and ₹5 lakhs. But when it comes to top engineering colleges of the country like IIT, BITS Pilani, etc., the cost goes up to ₹10 lakh- ₹15 lakhs. When you speak of post-graduation in engineering, the expenses shoot further up. Very few colleges, including government ones, have a fee structure of less than ₹10 lakhs. In private colleges, the fee shoots further up to ₹50 lakhs. Besides, many other expenses will add-on and the food and lodging are separate too.
Given such dramatically strong figures, there is an urgent need for parents to choose a child plan that helps pay for such rising education expenses so that their child’s dreams do not suffer.
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.
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.
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.
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.
To precisely know the amount, you should invest in a child plan, it is critical that you first understand the importance of good education and the corresponding cost. A good education from a renowned institute will help your child create a strong foundation for their future. With a good education, your child can earn better and also live a happy life, and more importantly become financially independent.
The average cost of education in India in 2020 is ₹15 lakhs. In 2040, it is expected to rise to ₹45 lakhs. Hence, your investment should be at least ₹10,000 per month for the next five years. This will help you ensure your child gets the best education possible.
Buying an insurance plan in India is very easy, you only need to submit the following documents:
When you buy an insurance plan that offers specific child-based features, make sure to check the claim settlement ratio of the provider. An insurance company with a high claim settlement ratio is more reliable as it increases the chances of claim settlement.
Here is a typical claim settlement process in the case of child insurance plans:
To register a claim, you will need the following documents:
Here are some tips to start investing early in a child education plan
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.
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.
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.
Even though we have Education Loans to our rescue, self – funding your little one’s aspirations is always a better idea and surely makes you a proud parent.
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. Hence, while investing in a child plan, it is important to calculate the fund you wish to accumulate keeping inflation in mind.
An insurance plan that offers coverage to children is often compared with a PPF policy or a government-sponsored scheme such as Sukanya Samriddhi Yojna.
|Monthly income support to fund education in case of death of the parent||Yes||No||No|
|Waiver of future premiums in case of death of the insured parent||Yes||No||No|
|Lump sum death benefit payment in case of death of the insured parent||Yes||No||No|
|Entry age||18 years||10 years||No limit|
|Permission for withdrawal of funds||After 5 years||After 21 years||After 15 years|
|Premature closure and penalty||Permitted penalty-free closure after 5 years||Allowed in case of compassionate reason. But rate of returns reduced to office savings rate||Allowed in case of serious ailment or for education, post deduction of 1% interest rate|
|Maximum annual deposits||No limit||Up to Rs 1.5 lakhs||Up to Rs. 1.5 lakhs|
|Documentation process for withdrawal||Low||High||Low|
One of the most coveted benefits of an insurance plan for children is the waiver of the premium feature. As per this feature, if the parent of the child dies in the tenure of the child plan, the insurance company waives all the pending premiums of the policy. Further, the insurance company pays out a defined death benefit as a lump sum to the nominee, while the due premiums of the policy are paid for by the insurer on behalf of the nominee. At the maturity of the policy, the child receives the maturity amount as per the policy document.
If the policyholder dies due to the following circumstances, the insurance plan does not offer any benefit:
1. Drug or alcohol use
2. Self-harm or suicide
3. Adventurous or risky sports
4. Criminal activities
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Child plan provides dual tax benefits. Premiums paid under child plan 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.
What are benefits of child plan?
Some of the most prominent benefits of a child plan are as follows-
Selecting the best child education plan is critical for the long-term development of the child’s future. This is not simply as a protection mechanism in case of any untoward incident but can also be looked at as an investment opportunity for the child’s benefit.
Here are a few tips in mind that can help you bring closer to choosing the right one
Child Life Coverage under child plan is a predetermined lump-sum amount that the nominee receives in case of the untimely death of policyholder within the policy term.
0 - Provided the premium paying term is more than or equal to 10 years.
1 - This is applicable only if all due premiums are paid and the policy is inforce.
2 - Policy loan are subject to terms & conditions of the product. Refer product brochure for more details.
3 - As per provisions of Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.
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