Every parent wishes to see their child prosper and be protected from all harm. Investing in a good child policy is part of the effort. A child education plan is a means to ensure financial security for your child's future needs in the domain of education which has become a costly affair in today’s time. Child education plans offer greater returns than traditional avenues like Fixed Deposits and Public Provident Funds. A child insurance plan protects a child from an unfortunate event like the untimely death of a parent in terms of providing some financial security. With many options available on the market today, it is important to choose a plan suited to your needs. We will be discussing a few questions to keep in mind while making the choice.
1. What expenses are you saving for?
This is the first place to begin and is the foundation question while choosing a child plan. It is important to consider the kind of education you are saving for. Will you be saving only for your child’s Bachelor’s degree or a Master's as well? A degree abroad might cost significantly higher than a course in your home country. Education costs are different in every country. Given today's competitive scenario as well as for multifaceted development, it is important for every child to participate in extracurricular activities. You must account for if your child wishes to pursue additional vocational training in a field of their choice in the future, and plan accordingly. Even though education is one of the most important expenses for a child, there are other expenses such as marriage and cost of living which parents take care of. A child insurance ensures that all of these expenses are taken care of when the parent is unable to provide due to unfortunate circumstances such as a permanent disability.
2. When should you start planning?
The short answer is- the earlier the better. Starting early provides a long time period to invest, allowing you to build wealth gradually. It is preferable to opt for a plan that encourages long term investment.
3. How to estimate the costs?
While deciding the amount assured, you need to estimate education costs according to yearly inflation rates. Currently, an MBA in a premier Indian institution can cost up to 15 lakhs. It's estimated that 10 years down the line, the fees for higher education across all disciplines in India will be roughly double. This is considering an inflation rate of 7% (the average in the past 10 years).
4. What will be your plan’s tenure?
The maturity period of your plan should be according to your child's present age. If your child is now 5 years old, he/she will be pursuing college in 12-13 years. Hence, you will have to opt for a child education plan with a maturity period of at least 10 years. A short-term plan is not a good option here due to higher premium rates for an amount that will be withdrawn before the appropriate time.
5. Does your plan allow partial withdrawals?
In case you require funds before your plan reaches the maturity period, a partial withdrawal clause can come in handy. Being able to withdraw money in intervals can be a great help in fulfilling the ever-growing educational costs.
6. Does your plan include a premium waiver?
Most plans nowadays include a premium waiver which allows the policy nominee to benefit from the plan after the maturity period, in case of the policy holder’s demise. All outstanding premium payments are waived and the nominee is entitled to the assured sum on maturity. If not included in the base plan, this waiver also comes as a ‘rider’ or an add-on to the plan. Other riders include a ‘death rider’ in which the insurer pays the beneficiary a lump sum in case of the unfortunate event of the insured person’s death. Critical illness riders, accident benefits, and income benefits are other options and must be looked into while opting for a child’s insurance plan.
7. Should you opt for an equity-linked or endowment plan?
Depending on your risk appetite, you can choose either. With a higher risk appetite, you can opt for unit-linked child plans over a period of 10 years or more, or for equities. Long term equities can lead to considerable growth of your fund. Always look for plans with a risk cover. However, if you are averse to taking investment risks, it is safer to invest in an endowment plan which is protected against market instability while providing necessary cover. Endowment plans act as a combination of insurance cover as well as savings.
8. Does your plan include bonuses?
You might be eligible for bonuses under your plan. Bonuses start getting credited after the first year and help grow the fund. A revision bonus can be simple or compound. Some plans may include a cash bonus.
9. How much tax will you be saving?
According to Section 10D of the Income Tax Act, 1961 the sum assured plus any bonus (i.e. the policy proceeds) claimed on maturity or due to death of the insured are exempt from taxation. The premium paid towards the plan is also eligible for tax deduction under Section 80C.
A child education plan can be an invaluable asset for you and your family. Starting early is the key to ensuring that your child has access to the resources required for their academic and career growth. Making an informed decision will secure your children’s future financially and allow him/her to pursue their dream and build a career. A plan that takes care of education as well as insurance, the Smart Junior Plan by Canara HSBC Oriental Bank of Commerce Life Insurance is one of the best choices out there. It promises guaranteed payouts during the last 5 years of policy which coincide with a child’s important educational goals.
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