Children are full of possibilities and aspirations. As a parent, you would want to make sure they can achieve whatever they want to do. Higher education plays a major role in ensuring a brighter future for your child.
Irrespective of what stream your child has opted for, a good university and a reliable course will ensure your child’s secure future. As a parent, your prime responsibility is to make sure your children can receive the higher education they need to build their successful careers. You can kick start securing your child’s future with the best child insurance plan.
Role of Life Insurance Plan in Protecting Your Child’s Goal
Child ULIP and endowment life plans are the types of investments that can protect the goal during your life and even after your demise.
1. Multiple Fund Options
You can invest in equity, debt and hybrid funds through ULIPs while availing all the other benefits of the plan. Some of the best ULIPs like Invest 4G from Canara HSBC Life Insurance can offer up to eight funds for investment.
2. Bonus Additions
ULIPS can offer bonuses for long-term and disciplined investors. So, if you are a regular investor and invest for a longer term you can expect higher growth.
Invest 4G ULIP offers the following two bonuses:
a) Loyalty Bonus for staying invested for more than ten yearsb) Wealth Boosters for regular investments
3. Life Cover
Your ULIP child plan is also a life insurance plan. Hence, there is a life cover attached to it. The life cover ensures a minimum sum to the family in the case of your early demise.
4. Goal Protection (Premium Protection Option)
In case you are no more, your ULIP child plan will offer your family the sum assured, and with that, the policy will end. Now, there is a unique feature that makes your ULIP child plan different from an ordinary plan. That is the Premium Protection option.
The Canara HSBC Life Insurance Guaranteed Savings Plan offers this Goal Protection feature.
In case you pass away during the policy term:
a) Your family will get the guaranteed death benefit; andb) All the outstanding premiums shall be paid by the insurance company till the policy maturity.
5. Tax Savings
Last but not the least, your ULIP child education plan is a tax-friendly investment instrument. All the accrued bonuses that you will receive at the end of your policy are tax-exempt 10(10d) of the Income Tax Act. Besides, you can avail tax deduction u/s 80c of the Income Tax Act on the returns from your ULIP child plan. However, the tax exemption on accrued bonuses u/s 10(10d) is limited to INR 2.5 Lakhs.
Now you can easily decide what is the best investment for a child's education.
Cost of Good Higher Education
The cost of education has been one of the fastest-growing expenses in India. The average cost of an engineering course in India from a reputed institution can go up to ₹ 5 Lakhs per annum. The fee for private colleges is even higher than the public ones.
Here is an estimate of the educational cost, if your child enrols into a 4-year engineering course in any stream:
a) Premium Publicly Funded Institutions in India: The cost would go around ₹ 4-5 Lakhs per annum
b) Premium Private Institutions in India: The total cost would be somewhere between ₹ 12 to 20 Lakhs
c) Premium Foreign Institutions in the UK and the USA: If she/he manages to get enrolled into one of the top universities from the US, UK or EU, the cost can even go beyond ₹ 1.5 Crores
Effect of Inflation
Now, if you compound all these costs with the inflation rate, the amounts will grow to be much higher in 10 years. The inflation rate in higher education has been about 5 – 10% p.a. in India and 3 to 5% p.a. in more developed countries.
Thus, you not only need a good investment option to beat inflation as well as tide over the taxes, but you also need to protect the goal. You can do so, by either:
- Investing money in good instruments and buying a separate term life cover, or- You can invest in a life insurance plan which also protects your child’s goal
Investment Options as per Risk Appetite – Equity or Debt
Various investment instruments can work as a child education plan. Depending upon your risk appetite, you can invest in different instruments:
1. Investing Safely
You need to safeguard your savings from the three risks – inflation, taxes and market volatility. Thus, you have the option of investing in the following:
- Endowment life insurance plans
- ULIPs with debt fund option
- Public Provident Fund (PPF)
All three options offer safe and tax-free growth to your money. However, there are a few limitations there:
Limitations in an Endowment Plan
- Returns are guaranteed but fixed
- Investing in regular premiums is important
- Long-term investors may receive additional bonuses
- Partial withdrawals are not available. However, you can borrow money against the policy
ULIP Limitations & Advantages
- Debt funds do not guarantee returns but offer a safe yet market-linked return. Returns are linked to the debt market instead of equity.
- Partial withdrawals are available after the five-year lock-in period
- Regular investment in the lock-in period is important
- Bonuses are available to long-term investors
Public Provident Fund Limitations & Advantages
- The maximum annual investment is limited to Rs 1.5 Lakhs
- Returns are backed by a sovereign guarantee
- Annual investments are not compulsory
- No life cover benefit
If your investment risk appetite allows, you may want to aim for higher growth for the investment term. Equity is one of the most promising and well-regulated aggressive investments. Here’s how you can allocate your money to equities:
Invest in ELSS (Equity Linked Savings Schemes)
- These are pure equity mutual fund schemes with tax-benefits
- These funds have a three-year lock-in period for every unit you buy
- Returns may face long-term capital gain tax if the gains exceed Rs 1 lakh
- No option of life cover with the investment
ULIPs with Equity Fund
- Enjoy tax benefits with equity fund investment
- Choice of aggressive and passive funds
- Goal protection option to continue the investment even after your untimely death
- The bonus may be available for long-term investors
Buying a child insurance plan will ensure that your children will not face any financial worries if something happens to you. Life is pretty unpredictable and hence, you should be prepared to protect those who you love.