We all love our children and give our best efforts in order to have them best of everything in life, starting from best schooling, higher education and marriage or till such time they are fully settled in their respective lives. In fact, children future planning, which commonly comprises higher education and marriage, is a minimum goal which every parent in India tries to achieve for their children.
But why this planning is required. The common myth is that we are working and therefore have a steady income and as we meet other expenses we will be able to meet these expenses too. But that is a myth! Here, the parents need to understand two things very clearly –
Cost of higher education is going up at a rate which is much higher than that of inflation. Therefore, you need to plan for building a corpus for future cost of higher education and marriage of your child. You also need to plan at which point in your child's life how much money you need and why. Once you have planned that you should start saving for the goals.
But have you ever wondered, even after planning for the above goal, your child might not achieve what you dreamt about his future? Yes, what you are wondering is correct. Life is uncertain and therefore, the above plan might go haywire if you as a parent are not there when your children need you most. Yes, you got it right! We are talking about a situation when God forbid, something happens to your life.
Therefore, not only we need to build a corpus for meeting goals of our children, we also need to protect their financial future by taking a child plan offered by life insurance companies.
Before we plan about the protection of their future, let us first see what could be the future cost of some of these goals.
|Cost of higher education at present value||Future Value @8% inflation (after 10 years)||Future Value @8% inflation (after 15 years)||Future Value @8% inflation (after 20 years)|
|Engineering Degree Rs 15 Lakhs||Rs 32 Lakhs||Rs 48 Lakhs||Rs 70 Lakhs|
|MBA Degree Rs 25 Lakhs||Rs 54 Lakhs||Rs 79 Lakhs||Rs 117 Lakhs|
|Medical Degree Rs 50 Lakhs||Rs 107 Lakhs||Rs 159 Lakhs||Rs 233 Lakhs|
|Marriage Rs 20 Lakhs||Rs 43 Lakhs||Rs 63 Lakhs||Rs 93 Lakhs|
As you can see from the chart above, the cost of a MBA degree 20 years from now may cost you much more than Rs 1.00 Crore against today's value of Rs 25 Lakhs only. Similarly, a decent marriage may cost Rs 20 Lakhs now, but, the same will cost you around a Crore after 20 years.
The question is, are you aware about the above cost and if you have planned for it? If you do not have a plan, then you must start saving in order to protect the future of your children.
The protection of your children's future comes only from child plan of life insurance companies. Life insurance not only helps you create a future corpus for these goals, it also assures financial protection in case of sudden demise of the parent.
These are life insurance plans which help you achieve these twin objectives – Corpus building for the future expenses and protection of life. Child insurance is one such insurance plan which provides the dual benefits of insurance and investment into one. As a parent you can buy a child plan when the child is very young.
Child insurance plans are regular life insurance plans with an added benefit called the 'Waiver of Premium'. This benefit states that if the parent, whose life is insured under the plan, dies prematurely within tenure of the plan, the death benefits are paid to the nominee or beneficiary immediately. Also, unlike other life insurance plans it does not get terminated after the death benefit is paid out as the plan continues to run till the end of the tenure without the future premiums to be paid.
How the child plan works
Therefore, you can take a child insurance plan and start saving solely for the purpose of meeting various financial goals of your child, like – higher education, his other expenses and marriage etc. while protecting him or her from unforeseen circumstances that might arise in case of your sudden death.
There are few important features of these plans:
It provides death benefit to the extent of sum assured in case of untimely death.
It provides Safety to the family as no future premiums are to be paid post untimely death and the plan benefits continue.
Your savings keeps growing as bonuses accrue and added to the plan.
Low premium paying term – Plans are available with 5 – 12 years of premium paying term or you can even choose your premium paying term.
You can save from your salary by paying premiums monthly through ECS mode.
Staggered payments when you need it most – Your child need financial assistance at various ages, when finishing the school, college admission, higher education at graduation and post graduation level, and marriage.
You can choose a frequency from the plan which allows you to withdraw a fixed percentage
at a given frequency.
Reduced paid up benefits are allowed if you have paid premiums at least for 3 years. In that case, the policy continues but on a reduced paid up basis and your sum assured on death shall be reduced in proportion to the premiums paid. There will be no further accrual of bonuses as well.
We have seen how the child plan of life insurance companies takes care of the various financial goals of the child and also how it protects the financial future in case of sudden demise of the parent. But, did you know that while the child plan protects the future of your child, it also provides insurance tax benefits which save taxes for you. Let us now see what are the benefits of taking a child plan?
Benefits under Section 80C of The Income Tax Act 1961 - the unique Insurance tax benefits of having a child plan is that you can avail tax benefits of upto Rs 150,000 per year, under Section 80C of the Income Tax Act 1961.Therefore, you can save upto Rs 45,000 (assuming you are in the highest tax bracket of 30%) in a year on the premium paid on the child insurance plan.
Section 10 (10D) of The Income Tax Act - The other insurance tax benefits is available on maturity proceeds received by you or your child or the nominee (in case of your sudden death). The maturity proceed is also tax free under Section 10 (10D) of The Income Tax Act. Therefore, child insurance plan is one of the few saving products, proceeds of which are completely tax free in the hands of the recipients.
Conclusion - We have many goals in life but protecting the future of our child is the utmost one. We have discussed how child insurance plans help you meeting these goals when you are around and also protect the children in case of any uncertainties on your sudden demise.
The child plan continue even after the death of the parent without paying any premium and pays the sum assured amount and other benefits again on maturity of the policy or in a staggered manner as chosen by you. Thus, there is no such existing plan that can compete with or match the benefits provided by a child insurance policy as far as protecting the financial future and bringing up the child right way is concerned.
These benefits coupled with various insurance tax benefits make this a unique choice for parents for protecting the future of their children.