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5 Benefits of a Child Education Plan

dateKnowledge Centre Team dateMay 04, 2021 views321 Views
5 Benefits of a Child Education Plan

Children’s education determines the quality of life they will lead in the future. That is why most parents emphasise on education. However, quality education has its price, like everything else in the world. This price is also affected by inflation and even the most subsidised institutions may have a hefty fee by the time your child grows up.

Thus, you must invest and build a corpus for their higher education since the beginning. Child education plans are the kind of investment options especially crafted for your child’s future financial needs. These plans will allow you to invest, grow and provide for your child’s goal without much effort.

1. Child's Future is Secured

While you are there for your family and child, you will ensure that their financial goals are met. But, if any mishap befalls you, your family may struggle to fulfil their financial goals, including your child’s higher education. You can buy a term insurance plan to provide financial security to your family.

However, long-term financial goals such as child’s higher education will need something better. A child plan can not only help you reach the goal by investing, but it can also help you safeguard the goal you decided.

For example, if you started with an aim to build a corpus of 40 lakhs for your child’s higher education dream, the child plan will ensure your child can reach there. Here’s how:

  • Assuming your annual investment for the plan is Rs. 2.5 lakhs
  • You will be investing for next 15 years
  • You have a life cover of Rs. 25 lakhs under this ULIP plan
  • In case of your death in the seventh year (before completing your investment tenure):

    • Your family will receive Rs. 25 lakhs life cover amount immediately
    • Insurer will continue investing the due premiums as if you were alive till maturity
    • At maturity your child will receive the accumulated fund value from the plan (close to Rs. 40 lakhs) as you had planned

Thus, the goal protection option in child education plans can help your child meet her education goal even after your untimely death.

Learn why have education plans become a necessity.

2. Enjoy Tax Benefits

Child education insurance plan offers a three-in-one tax benefit for you. Investment in the plan, capital growth and withdrawals from the plan are all exempt from tax.

  • The premiums you pay on the child education plan qualifies for tax deduction up to Rs.1.5 lakh under Section 80C in a financial year
  • The growth of funds and any switches between debt and equity funds within the plan are exempt from tax
  • Partial withdrawals from the plan after the five-year lock-in period are tax-free
  • Maturity value (and death benefit) received from the plan is also tax-free

If you started a new child plan on or after 1st Feb 2021, you can invest up to Rs. 2.5 lakhs a year (financial year) in this plan without losing the tax benefits on withdrawal and maturity.

3. Multiple Asset Options

You can invest in two different types of child education plans as per your risk appetite and financial need:

  • Unit Linked Child Plan or Child ULIP plan
  • Endowment Plan for Child’s Education

Both plans offer you safe investment option, but endowment child plan will offer a guaranteed sum at maturity. On the other hand, Child ULIP will also offer equity funds for high-risk high-return growth over longer term.

Thus, you can invest in ULIP plan if you want aggressive growth and have the appetite for equity investment. Even if you want to avoid equity, but still want market linked returns ULIP plan has debt fund option for you.

Learn more about ULIP as an investment for your child.

4. Automated Portfolio Management

If you are using a ULIP plan to grow your money aggressively, you need a way to manage your portfolio risk while you are not looking. The best child plans including Invest 4G ULIP plan from Canara HSBC Oriental Bank of Commerce Life Insurance offer automated portfolio strategies.

These strategies help you manage your portfolio risk based on market performance rather than your intervention. So, while you have automated your investment, the strategy selection will free you from hovering over your child plan in a volatile market.



5. Bonus Additions

Every good child plan, whether ULIP or endowment, will offer bonus additions for long-term investors. The best child plans, however, can offer more than one bonus additions. For example, Invest 4G ULIP plan offers loyalty bonus for long-term investor and wealth boosters for growth seekers.

You can look for similar benefits in child plans to select the plan best suitable for meeting your child’s education goal. Additionally, not every higher education institution seeks a lump sum payment. So, why not look for a plan which will allow staggered pay-outs or systematic withdrawals at the end of the policy tenure.

Plans like Invest 4G, Guaranteed Savings Plan and Smart Junior Plan from Canara HSBC Oriental Bank of Commerce Life Insurance offer these features and benefits.

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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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