Investing for your child’s future should be the first thing on your mind today, especially in an environment where rising educational costs and inflation are the norms. Every parent has a wish to give their child the best possible higher education and access to better opportunities. You are no different. However, make sure you take measured steps towards accomplishing the same. Should you choose a ULIP plan for your child? Or should you go for something else? Read on for more inputs that will help.
Skyrocketing higher education costs can no longer be ignored
Families with children can no longer put future educational costs on the back burner. Educational costs have skyrocketed worldwide, and not just in India. According to estimates, an engineering degree that costs almost Rs. 10 lakh is estimated to rise to around Rs. 33 lakh in 10 years. In the same duration, a medical degree that requires Rs. 19 lakh today is estimated to rise to Rs. 66 lakh! Education inflation is on the rise, and you need to draw up a plan to accumulate sufficient funds for your child’s higher education as early as possible.
Some of the popular options are investing in mutual funds, ULIPs, PPF (Public Provident Fund), Bank Deposits, etc. From these, ULIPs have a variety of options, from equity, debt, balanced, and liquid funds. These offer different returns on investment and have varying degrees of risks. Now, assuming that you have started planning early, you would currently have around 15-18 years for your child to go off for higher studies. This gives you sufficient time to invest in special ULIPs called child plans. Let’s learn about them in detail.
Child plans and how they help
Child plans help parents invest in a disciplined manner to secure the future goals of their children. These plans help accumulate a future corpus for children. These are investment plus insurance plans where parents can start saving for future milestones in their kids’ lives. These plans are tailored to ensure lump sum payouts or periodic payouts after a specific duration.
You can smartly invest in a child plan to ensure that the maturity period for the same is right around the timeline when your child is about to enter college or venture out to study abroad. These plans can also help cover the wedding costs for children. The returns from these plans may also help children professionally in terms of starting on their own or making investments for future goals.
What are the various types of child plans available?
There are several kinds of child plans that are available, and two of the most popular ones include:
- Child ULIPs – These ULIP plans come with a combination of investment and insurance. While helping accumulate wealth through investments, they also come with a sum assured payout to the policyholder’s child or nominees in case of the policyholder’s untimely death within the policy period. The child or the listed nominee, will get either a lumpsum amount or regular periodic payments, depending on the policy’s terms. Additionally, some ULIP child plans also offer the option of a premium waiver in the event of the policyholder’s untimely death. These plans ensure that payments are made on a regular basis to support your children’s education.
- Child Savings Policies – These are endowment or child insurance policies. They offer a combination of savings and life coverage. The investment is deployed in low-risk instruments, including government bonds and fixed deposits. The corpus accumulates throughout the policy period while there is a sum assured in case of the policyholder’s untimely demise within the policy tenure. One important aspect of child endowment policies is that the payment of the sum assured is guaranteed upon the passing of the parent i.e the policyholder in this case, or when the plan reaches maturity. The payout from the policy can help your children finance their higher education. These plans come with lower risk levels and are suitable for more conservative or completely risk-averse investors. They also come with tax benefits like ULIP plans.
Why you may consider ULIPs
A ULIP plan could be a good option for your children’s requirements. Some of its benefits include the following:
- As per your risk tolerance, you can select the types of funds you wish to invest in.
- ULIPs can help you meet the cost of your child’s education. The accumulated corpus can be utilised to fund your child’s education.
- ULIPs can help you meet the child’s immediate and future financial requirements, as you get life coverage for a guaranteed sum assured in case of your demise within the policy tenure. This can benefit your children in your absence.
- ULIPs provide Tax benefits up to Rs. 1,50,000 under Section 80C, along with Section 10 (10D) which makes the returns tax-free.
- There are options for switching funds depending on the market scenarios.
- Partial withdrawal facilities are usually available after a 5-year lock-in period.
You can use a ULIP calculator to work out the premium payable and the amount you can estimate in returns. This could be a good option to build a future corpus for meeting your child’s higher education and other costs while securing your family’s financial future with life coverage at the same time.
Why you may consider Endowment Plans
Child Savings Plans are also excellent investment choices for parents who want to secure their children’s future. The advantages are described below.
- There is far less risk involved as these are non-linked products.
- These policies, which are also child insurance plans, give you a life insurance benefit that may come in handy if you pass away before the policy term ends.
- Child savings plans also provide tax exemptions for premium payments made under Section 80C of the Income Tax Act of 1961. Furthermore, the benefits or returns earned are tax-free under section 10(10D) of the Income Tax Act of 1961.
Conclusion
It is crucial to have a better understanding of your life goals before investing in a child plan. This assists you in determining the amount of corpus required to fulfill your commitments to your children. In addition, because most child plans are long-term investments, you must also account for inflation. After you’ve considered these crucial factors, you’ll be better positioned to make an informed decision about the type of plan to implement to protect your child’s future. You could also contact your Insurance Consultant/Advisor for customized options based on your life stage, circumstances, and aspirations.
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