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When To Start Investing In A Savings Plan For Your Child?

dateKnowledge Centre Team dateJanuary 12, 2021 views190 Views
When To Start Investing In A Savings Plan For Your Child?

Preparing for the future of children is always one of the top priorities of every parent. It mainly includes investing in a child's future education and studies. By planning these things early, one can ensure that their children do not face a financial crunch while funding their dreams.

One essential thing to never forget while considering child insurance plans for the future is that you should not lay aside your investment plans for retirement. It is to ensure that you don't end up being dependent on your children during retirement years. You may even consider educational loans or self-funding by your children as a last-minute plan.

Without wasting any more time, here's a fully-detailed guide on how and when to start investing in a savings plan for your child:

1. Decide the time horizon of your investment

One of the essential things to factor in while planning for future investments is the length of time you want to continue making the investment. Generally, the longer the time horizon, the greater benefits one can enjoy. You could also figure out how long it will take for your child's graduation and post-graduation. Accordingly, you can start investing in a child plan.

2. Estimate the cost of education

The second thing you need to determine is the average cost of your child's future education. Post-graduation generally costs higher than graduation, but it may vary from institution to institution. Another factor to consider is if you want your child to have global exposure in education or stay close to home. Here, you could even take into account your child's graduation in your own country and post-graduation in another country.

Here's a small example to help you understand the importance of both the given points.

Your child's current age 3 years (suppose)
Cost of education in today's terms Rs. 5 lakhs
Time left for graduation 15 years
Inflation rate 10% per annum
Cost gathered at the time of graduation Rs. 20.88 lakhs
The amount you need to invest per month Rs. 4,180

Hence, by planning and investing early, you can earn a significant sum of returns in a longer time horizon.

3. Assess your current assets and liabilities

Before making plans for the future, you should know where you stand presently. Properly analyze your assets and liabilities and then make a decision. If you're investing a part of your savings in a child plan, you should be very clear about its present value. Knowing the current value ensures that you get protected from dipping in the investments made for other financial goals like your retirement. Do not dive into the child plan investments for other low priority expenses like house renovation, etc.

4. Put aside some amount to save

After analyzing the average cost of education, you should decide on how much amount you should save. Plan accordingly on how to reach the desired goal on time. You should try to protect a larger portion of your current monthly income if your savings seem insufficient. It can be challenging in many cases. Try reducing unnecessary expenses. You can always find another side source of income. But, you have to keep in mind that your savings alone will not make your future secure. Savings will not help you to reach the targets since inflammation rates can erode their value.

5. Get yourself insured

It is important to get insured in time in case the future has surprises for you. Untimely death is one problem that most families face. It hurts the financial system, especially if the sole earner of the family dies. Insurance is the key to achieve future family goals in your absence. By having an appropriate life and health insurance, you can ensure the coverage of the school and tuition fees of your child.

6. Always prepare for the unexpected

Apart from getting insured, it is always beneficial to prepare for anything unexpected. It may include additional expenses like the cost of accommodation, pocket money, and so on. When your child enters high school, there are many other unexpected payments apart from school and tuition fees. These amounts may look small at that time but may cost you more in the longer run. It is even more relevant if your child decides to do graduation or post-graduation overseas. But this is not impossible to manage. Take some time speaking to other experienced individuals. It will help you get an estimate of the potential expenditures.

Investment Strategies For Your Child’s Future Plan

After you've decided when to start investing for your child, the next step is to find the most suitable investment plan for you. It will help you analyze the amount to save and assess how much you can afford after keeping aside regular savings.

Here are a few investment strategies worth checking out:

• Systematic Investment Plans:

Investing in Systematic Investment Plans (SIP) has many advantages. It allows you to invest your money in a structured manner. For goals like your child's future education, investing in equity funds through SIP for a longer tenure is what you can consider. Also, we see that generally, the returns from equity funds are more likely to beat the inflammation rates of 5-6% every year, with a good compounding power. Furthermore, by investing a small amount monthly, you can ingrain a habit of regular savings in you.

• Debt Funds:

When compared to equity funds, debt funds are less riskier. The funds usually get invested in numerous deposits or bonds, and the interest is finally earned by lending the funds and investing. Investments in debt funds are preferable for the recurring expenses of a child, like school fees. It is because debt funds are very flexible when it comes to liquidity. It means that you can easily withdraw your funds anytime you want. It will also deliver returns up to 5-7% annually.

• Public Provident Fund:

The Public Provident Fund is made only to invest in funds with a provisionary exemption. It is one of the best investment plans for the future education of your child. The main feature of this kind of investment includes an allowance of tax deduction, and no tax is imposed on the accumulation of returns either. The PPF investment comes with a tenure of a minimum of 15 years. Hence, it is most suitable for higher education or marriage plans for your children. However, you must start investing in the early stages to build a large corpus over time.

• Sukanya Samriddhi Scheme:

The government introduced the SSS Yojana to encourage parents to save money for the girl child. You can opt for this scheme anytime for a girl between her birth till she becomes ten years old. This scheme also comes with a tax exemption feature. The maturity period for the Sukanya Samriddhi Scheme is 21 years. Therefore, you must invest as early as possible if you want to reap the benefits of this scheme. The current rate of interest is 7.6%, which is subject to change. Further, you can also make small withdrawals after your girl turns 18 years of age.

• Term Insurance Cover:

Term insurance plans are also one of the best child plans to consider. A pure term insurance plan covers the needs of your child in case of an unexpected event. If something happens to the sole bread earner, it will cover the financial blow. If you are opting for a term insurance cover, you should always have coverage that includes all the major expenses like education, livelihood, marriage, etc., for your child.

If you have invested in an equity fund, you should move the corpus to a debt fund when you start approaching your financial objective to lower the chances of risk.

However, if you have less time to invest in a child plan, opt for a 50-50 investment strategy between debt and equity instruments. Through this method, even if you incur some losses from your equity investments, the debt investments will balance your total loss.

It is also essential to ingrain good saving habits in your children from an early age. Teaching them the importance of financial planning and involving them in the process is highly recommended. When you're building a child plan, remember to take care of the involved risks, features, and terms and conditions of your investment before applying for the investment.

With Canara HSBC Oriental Bank of Commerce Life Insurance Company, you can invest smartly with our junior plans. Our smart junior plan includes perks like guaranteed annual payouts, flexible policy term options, and limited premium payments. Start early with us to yield more returns for the future of your child!

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Frequently Asked Questions (FAQs) for Child Insurance

Any parent with a child between 0-15 years should opt for a child insurance plan. It helps you deliver inflation-beating returns for the various needs of the child while he/she grows up. As a child grows up, his/her financial needs increase substantially.

The importance of a good education cannot be overstated. Without quality education, a child may not reach his/her full potential. But the rising cost of education can become an impediment in higher education. A child education plan ensures that you do not have to worry about the money for your child’s education. It is a mix of insurance and investment. A part of child education plan is used to provide the financial security of insurance, while the balance is invested in market-linked instruments. The investible portion delivers decent returns in the long run, helping you accumulate a corpus for your child’s education.

Child plans are tailor-made financial products designed to secure children’s future. Typically, child plans have two components—insurance and investment. The insurance component protects the child in case of the parent’s demise, while the investment helps in accumulating a corpus for the child’s needs such as education and marriage. Child plans have several features that are primarily aimed at financially securing children. Some of the features are:

  • Maturity benefit
  • Premium funding option
  • Partial withdrawals
  • Milestone payments
  • Various investment funds
  • Protection of returns

The right time to buy child plans depends on the financial goal and the type of policy. Child insurance policies are long-term instruments and to generate decent returns it is advisable to invest as early as possible. You can invest in child insurance policies even before the child is born. Child education policies are relatively short-term policies. Child education policies can be chosen according to the financial goal. You can invest in child education policy as soon as the child is born if you plan to fund his/her primary and secondary education through the policy. If the aim is to accumulate funds for the higher education of the child, then you can invest at a later stage. In any case, it is not advisable to invest after the child has turned 15.

Child plans are meant to build a financial buffer for your child’s future needs, so, it is important to have a fail-proof plan. A few things to consider while buying child plans are:

  • Goal: It is pertinent to have a clear goal in mind as it determines the type and tenure of the policy. You should invest in a child plan as soon as the child is born. Starting early gives your investment to grow and helps you prepare better for your child’s needs. Similarly, selecting a long-term policy protects your child for a longer-term.
  • Premium waiver: While buying a child plan, it is mandatory to check if the premium waiver facility is available or not. Not having a premium waiver option can leave your child vulnerable in your absence.
  • Inflation: When you are investing for the long term, external factors like inflation cannot be ignored. Invest in ULIPs to generate inflation-beating returns. Invest 4G plan offers customers an option to choose from seven different funds with varying degrees of exposure to equity.
  • Bonus component: Along with the basic benefits of a child plan, insurance companies also offer additional benefits. Even though these benefits are small, they could add value considerably in the long run. For instance, Invest 4G plan provides benefits such as wealth boosters, loyalty additions and return of mortality charges.

The eligibility to open a child education plan is similar to a child insurance plan. The entry age is generally between 18 and 65 years. The maturity age is between 23 years and 80 years. You can start investing in a child education plan with Rs 5,000 per month or Rs 50,000 per year. The policy tenure varies between 5 years and 30 years.

There is no universal minimum instalment for a child education plan. Every insurer has its own minimum limit, even different plans have a different minimum limit. Invest 4G plan has a minimum limit of Rs 5000 if you choose to pay monthly premiums. The minimum premiums for quarterly and half-yearly payment tenures are Rs 15,000 and RS 30,000, respectively. In the annual mode, the minimum premium is Rs 50,000.

Child education plan can either be unit-linked or non-linked. The interest rate of ULIPs is determined by the fund chosen by the policyholder and the performance of the market. The interest rate for non-linked child education plan is decided by the insurance company.

The policy for premature closure of child education plan deposit differs from insurer to insurer. Some insurers allow premature closure of child education plan deposit. If the account is closed before the lock-in period expires, the fund’s value minus the surrender charges id deposited in the discontinued policy fund. The amount earns a minimum of 4% interest and will be paid to you after the lock-in period gets over. It the policy is surrendered after the lock-in period, the total fund value minus the surrender charges will be given to you. But premature closure of child education plan can be fraught with risks and you may not achieve the stated aim. Invest 4G plan allows you partial withdrawals without surrendering the policy, which essentially disincentivises premature closure of the policy.

Child education plans come with flexible payout options. You can either set up a standing instruction for instalment payment when you buy the policy or inform the insurance company during the policy tenure. Insurance companies generally accept requests for instalment payment a few months before the maturity.

One of the defining features of child education policies is the partial withdrawal facility. Most insurance companies allow partial withdrawal from child education plans to take care of liquidity needs. Invest 4G plan allows partial withdrawal after the 5th policy year.

You can avail a secured loan against a child education plan. The loan can be used to fund the higher education of the child.

Child education plans are like child insurance plans with some slight differences. Child education plans have relatively shorter tenures than child insurance plans. Child education plans have milestone payments coinciding with the educational stages of the child. These plans have a limited scope and are not dynamic products like child insurance plans.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

Child education plan not just secures the financial future of the child but also provides tax benefits to the policyholder. The premiums paid for child education plan are eligible for tax deduction under Section 80C of the Income Tax Act. The maturity amount is also tax-exempt under Section 10(10D) of the income tax law.

While there are several child plans in the market, the Invest 4G plan is the best of the lot. Invest 4G with its unique proposition provides all-round protection to your child. With the online ULIP plan , you can decide the premium payment tenure and also the settlement option.

You can invest in a number of financial products for your child’s education. If you need a long-term savings instrument, the PPF is an eligible option. But if the child’s education is the sole aim of your investment, nothing is better than a market-linked scheme. Market-linked investments, especially equity investments tend to perform better in the long run. Investment in market-linked schemes can ensure handsome returns on your savings by the time your child grows up. Opt for Invest 4G plan to give your child a secure educational future.

Getting insurance required a visit to the bank or the insurer’s branch earlier. But with the popularity of online ULIP plans, getting an insurance plan has become extremely easy. You can buy a host of insurance products directly from www.canarahsbclife.com and get discounts on the premium from the company.

While the cost of insurance depends on a host of factors such as tenure, coverage and the mode of payment. With Invest 4G plan, you can start investing for the financial future of your child with just Rs 5,000 every month. However, if you are not clear about the cost of insurance for your child, you can use the ‘life insurance calculator’ in the ‘tools and calculator’ section of www.canarahsbclife.com. Similarly, you can use the ‘child education planning calculator’ to get an idea of the cost of child education plans.

Considering the flexibility in the premium payment tenure and the payout settlement, Invest 4G is the best scheme for the child. The Invest 4G plan also provides the premium funding option which ensures the financial stability of the child even in the absence of the policyholder.

To choose the ideal child insurance plan, you will have to start with planning the various stages of the plan and your child-specific milestone payments.

  • Paying capability: Just investing in a child insurance plan is not enough, you will have to pay the premiums regularly and timely to keep the policy active. Make a correct estimate of your paying capability and decide the premium payment frequency.
  • External factors: While buying a child insurance plan, consider the external factors such as inflation and interest rates before finalising the maturity benefit.
  • Premium waiver: The premium funding facility is a crucial feature for the success of the child insurance plan. Not having the premium waiver facility can leave a costly chink in your child insurance armour.

To choose the ideal child insurance plan, you will have to start with planning the various stages of the plan and your child-specific milestone payments.

Having life insurance has become a necessity and the earlier you buy one the better. Life insurance plans are cheaper when you are young. Moreover, when you are buying products such as ULIPs that have an investment component, having a long policy tenure helps in compounding your savings.

Most insurance companies have started offering online policies. You can either pay through offline mediums or opt for online ULIP plans. Buying insurance policies online is cheaper and hassle-free. The premiums can easily be paid through the website or mobile app.

There are three major rider benefits provided with child insurance plans.

  • Premium waiver benefit
  • Accidental death and disability cover
  • Critical illness cover
  • The frequency of the payout is decided by the policyholder while buying the insurance plan. Even if you fail to define the frequency of the payout while buying the policy, it can easily be rectified during the policy term.

    You can appoint a minor as nominee for your plan, but you will have to nominate an appointee who will have to give his/her consent to act as an appointee. The appointee will cease to hold power once the minor nominees become majors. In the event of a claim, of your nominee is minor and you did not name an appointee, the proceeds will go to the legal heirs.

    No child should give up on his/her dreams to study in premier institutes like IIT and IIM due to financial constraints. With the rising cost of higher education, investing in a child plan has become extremely important. Child plans help you save in a disciplined way for a secure financial future of your child.

    Canara HSBC Oriental Bank of Commerce offers a plethora of child plans to take care of varied needs. With unique features such as fund switching, premium redirection, change in sum assured and return of mortality charges, child plans from Canara HSBC provide unprecedented coverage.

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