Like every parent, you must have also dreamt of giving the best possible quality of life to your child. You may have memories of what you missed and want to ensure your child does not face such setbacks when growing up that could impact education and upbringing. Lifestyle costs are increasing due to spiralling inflation and quality education even at the best of government-backed institutions come at a significant cost. Child insurance plans help you in building a significant education fund for your child, however, if you are not investing in the best child insurance plan, it may not prove to be that beneficial.
You may have made great plans to send your child to the best school in town and then to the best Indian/Western University for higher studies. But have you thought about the budget needed? And if life has its plans where you are not around to see your child fulfil her dreams. It is always better to have a plan to ensure that your child grows up and does well irrespective of family circumstances.
In all major setbacks and family crises, the child is the most affected family member as his/her career gets jeopardized. Parents may bounce back from a financial crisis, but the child will never get back his lost time.
Investment plans, designed for children, can help mitigate such risks so that the child’s education continues, unhampered. Life insurance plans serve dual purposes. One, they offer financial security for family and two, they generate wealth through investment-linked policies.
Financial Safety for your Child
This should be the first step to protect your family. The biggest anxiety, as a parent, is the inability to support a child’s education in case of disability or demise. In case of serious disability, the income-earner of the family will no longer be able to work.
You can keep your child’s dreams safe with the following two plans:
- Have a term insurance cover which is 10 – 15 times your annual income
- Use child plans with premium protection option to save for your child’s higher education goals
A term life policy like the iSelect Start term plan from Canara HSBC Oriental Bank of Commerce Life Insurance gives your family a fixed sum as well as a regular monthly pay out upon your untimely demise. This lump sum money can help your family pay off the ongoing debt and save for future goals.
The regular income will take care of the regular expenses of your family in your absence. While a term plan is sufficient to take care of the regular expenses and smaller financial goals. Higher education might need more than a term insurance cover.
Learn more about iSelect Star Term Plan.
2. Financial Support
The world today is changing faster than ever and so does the career choices for your child. While you must start investing early to prepare for the best, you may not know for sure how this need will turn out to be for your child.
Thus, start saving early on. This will help you earn more in the long run. Insurance plans, with investment components, are ideal options because they not only provide a venue for the growth of your savings but also adequate financial safety.
How Much to Invest?
The ideal way is to start investing at least 5 to 10% of your income in your child’s higher education goal after her birth. You can revisit the goal from time to time as your child grows up and her ambitions become clearer.
So, for example, if your income is Rs. 1 lakh a month and you dedicate about Rs. 5000 a month towards your new-born child you can expect to build a corpus of about Rs. 24 lakhs when she turns 18 (at an 8% p.a. rate of interest). Investing Rs. 10,000 p.m. will allow you to build a corpus of approx. Rs. 48 lakhs.
You can increase or decrease the investment as your child’s goals become clearer.
Child Education Plans from Canara HSBC Oriental Bank of Commerce Life Insurance
Child education plans are specially crafted investment instruments to help you build the corpus to support your child’s future. These plans not only grow your savings in a tax-efficient manner but also provide necessary safety to the goal from your untimely demise.
Canara HSBC Oriental Bank of Commerce Life Insurance offers two such plans with features to match your needs effortlessly:
A. Smart Junior
- This is a guaranteed investment plan, i.e., the future value of the investment is fixed as per your investment amount
- The plan gives you the option to receive staggered payments near the maturity
- You can choose a policy term that matches your financial goal such that the payments match your need for fee payments
- The annual payments from the plan are guaranteed
- The plan provides bonuses for long-term investment. Thus, the longer you stay invested the higher growth you can enjoy.
Learn more about Smart Junior Plan.
B. Invest 4G ULIP Plan
- This is a Unit Linked Insurance Plan and gives you the choice to invest in more than one fund
- You can invest in both debt and equity instruments based on your risk appetite.
- If you are comfortable with equity investments, you can use automated portfolio strategies to manage your asset allocation as per market movements
- This policy also permits partial, systematic, and milestone-based withdrawals. However, unlike Smart Junior Plan here you can schedule the withdrawals anytime within the policy term.
Premium Protection Option – The Safety Net
Both these child plans offer premium protection option which ensures that your child has sufficient money when she needs it, even if you are not there to see it through. Assuming you plan to invest Rs. 1 lakh a year into one of these plans starting the birth of your child, here’s how this feature will work:
- In case of your demise within the policy term, say in the 7th year, the family will receive Rs. 10 lakhs (life cover in the plan)
- The policy’s investment component will continue with the insurer investing the remaining 11 premiums over the remaining policy term.
- Upon the planned maturity date, your child will receive the maturity value from the plan (or partial payments in the case of the Smart Junior Plan)
Tax Benefits of Child Plans
Another important factor to consider for you to invest in a child plan for your child’s future is the impact of taxes, or rather the lack of it. Tax benefits from child plans:
- The invested money is eligible for deduction under section 80C every year
- The maturity value from these plans is also exempt from tax provided:
- The annual investment does not exceed 10% of the life cover amount in the plan
- Total investment to ULIP plans including ULIP child plans is less than Rs. 2.5 lakhs in a financial year
Learn how child insurance plans can help you save tax.
3. Moral Support
‘Give a man a fish and you will feed him for once, teach him to catch fish and he may never go hungry again,’ is an adage with deep meaning. In the context of a child all, you need to help them grow into confident and strong individuals who can face the challenges of life with confidence.
This is what parental moral support does for a child. It prepares them for the future challenges of life, regardless of how harsh they are. Many studies have pointed out that small regular involvements of parents in a child’s activities go a long way in this direction.
So, while you are financially prepared to provide for their future, your presence in your child’s mind is still the most important factor in determining their future.
Insurance policies are comprehensive, robust, and wholesome as they help in wealth creation, provide adequate financial protection, and also give tax benefits. An insurance policy is synonymous with peace of mind because you know your child will get the education you planned, even if, God has some other plans for you.