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How to Build an Education Fund for your Child?

dateKnowledge Centre Team dateApril 29, 2021 views291 Views
How to Build an Education Fund for your Child?

It is quite natural for parents to want the best for their little ones. Among all other things, a good education is something that every parent aspires their child to pursue. However, with growing times, the cost of education is also skyrocketing. Ensure a secure educational path for your child’s needs to begin as early as possible. You can shell out a portion of your savings and invest it in your child saving plan for education. These child insurance plans make sure that you can afford top-notch institutions and quality of education for your child without cutting down your expenses.

How to Build the Corpus for your Child’s Education?

The fee required for a good education may seem daunting right now, but you have years to match the numbers. It is better to spend your time to understand how you can invest your money in saving plans to secure your child’s educational needs in the future. Here are the points that you should keep in mind.

1. Choice of Investment

Your investment plan should ensure that you get a considerable interest in your savings. While fixed deposits are considered to be the safest option, their interest rate is not more than 5%. For a higher interest rate and better returns, you can try equity-oriented funds.

2. Type of Equity-Oriented Funds

Depending upon the number of years you have till your child enters college, you can choose the type of mutual fund to invest in. If you have less than 5 years, choose the plans that provide a large percentage of returns.

3. Amount of Investment

The amount you invest depends on the expected fee of the course as well as the years you have to save. If you start early, the monthly SIP amount will be lower and more affordable. You can calculate the SIP as per the expected returns that you will get from your investment.

How much should you Save for your Child’s Education?

In the last 10 years, the cost of education has doubled when one looks at top-tier institutions. A regular course of B.Tech, which cost around Rs.3.6 lakhs in 2019, now amounts to Rs.10 lakhs. A similar trend pattern can be seen in other courses as well, including popular choices such as MBBS, MBA, etc.

While deciding how much you need to save for your child’s education, you will first need an estimate of how much the cost of these professional courses will be in the coming 10 years. If one takes the average that the fees are rising by 10% a year:

Course Expected Fees in 5 years Expected Fees in 10 years Expected Fees in 15 years
B.Tech INR 16.5 lakhs INR 30 lakhs INR 41.7 lakhs
MBA INR 30 lakhs INR 49.2 lakhs INR 79.3 lakhs
MBBS INR 40 lakhs INR 64 lakhs INR 1.4 crore

3 Saving Tips for your Child’s Education Fund

As the standard of living rises, it affects the decision about where you send your children for higher education. To keep up with the lifestyle, time, and demands of education, it becomes paramount for a child to get the best education.

Having said that, the big question that will worry parents is whether they will be able to fund the higher education of their child. In short, they can; only with prior planning and walking in the right way. Let us list some way in which you can make it possible:

1. Start Saving Early

It is the most obvious and reliable approach. Planning for your kid's education is a long-term financial goal; thus, the right time to do so is when he or she is born. Let's assume that they will go to college when they are 18.

This implies that you have nearly sixteen to seventeen years to build a proper amount of funds to meet all the educational requirements. With the power of compound growth, your small savings will turn into a significant amount of money.

Find out the right time to invest in a child plan.

2. Assess the Future Cost of Education

The cost of higher education becomes expensive with inflation. Currently, the average rate of inflation is 13%. Assuming the rate remains the same, you can calculate the course fee.

Thus, while you calculate the funding needs, it is advisable to assess education costs in the future. This will help you have a rough idea about the monthly savings you need to put towards it.

3. Choosing the Correct Plan

An early start isn't sufficient to grow a significant amount of money. Since child's education is a long-term goal, and with inflation prevalent, it is essential to invest in a proper plan. It will not only provide an inflation-beating return but also has less risk. The right way to approach a child saving plan for education is opting for a Child Insurance Plan available.

These are a few things you need to consider before you begin investing. Now, a proper and reliable child insurance plan will yield the fund you expect. Before discussing various types of plans, let us know what they exactly are and why you should invest in them.

How can Canara HSBC Oriental Bank of Commerce Life Insurance help you?

Canara HSBC Oriental Bank of Commerce Life Insurance offers several child saving plans. These plans are created to ensure that the future needs, education aspirations, and financial situation of the parents are taken into account. No one plan can fit all the families. Thus, these varied plans are provided so that the parents can affirm the educational goals of their child. Given below are some of them:

1. Invest 4G Plan

Invest 4G Plan is a unit Linked Individual Life Insurance Savings Plan. The users can customize the plan according to their changing requirements and goals. The plan allows you total control over your insurance needs and savings with an unmatched combination of Portfolio Management Options and flexibilities.

ULIPs for planning your retirement

2. Smart Junior Plan

Smart Junior Plan is an exclusive investment option for your child's education needs. It is an individual Non-linked Par Life Insurance Savings cum Protection Plan which will fulfil your child's future education needs regardless of your presence. You can align your child's educational milestones with the guaranteed payouts during the last five years of the policy.

3. Guaranteed Income4Life Plan

Guaranteed Income4Life Plan by Canara HSBC Oriental Bank of Commerce Life is a non-linked, non-participating individual life insurance savings cum protection plan. It not only offers guaranteed benefits but also regular incomes for taking care of both long-term and short-term financial goals. It is an easily customizable plan which allows the user with flexible premium/terms option so that the plan resonates with the individual's needs and stages.

4. Guaranteed Savings Plan

Guaranteed Savings Plan offers guaranteed benefits and the flexibility to choose your savings horizon. Thus, you can tailor your policy that best suits your financial goals and requirements by following a few steps.

These were a few children saving plans that will help secure your child's educational requirements. Do proper research and start investing for a better and secure future for your child. Choosing the best child saving plan can help you remain worry-less as your child grows up and chooses his path.

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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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