Child Education Plan

Every parent wants to provide their children with the best possible life, yet higher education becomes 10-12% more expensive every year. As a result, your child's education needs extensive, methodical financial preparation. Investing in a child education plan can help you meet future expenses related to higher education⁵.

Child Education Plans are a combination of investment and insurance plans that assist you in setting aside money and making investments for the child's future requirements. The insurance component is beneficial in securing the future of the child (if a parent were to pass away), while the investment component ensures that there is a lump sum available at maturity.

The premiums can be paid on a monthly, half-yearly, annual, or single-payment basis. However, if an unfortunate event occurs, many insurance firms waive away premiums for the remaining term. In other words, the policy will still be valid and the child's education will be secure. As long as all outstanding premiums are paid, this benefit is available.

There are primarily two types of child education plans: child ULIP plans and child savings plans.

1. Child ULIP Plans
ULIP stands for unit-linked insurance plans. Such policies offer a combination of investment and insurance components. In the same vein, Child ULIP plans provide insurance coverage as well as market-linked returns on investments.

Child ULIP plans are advantageous in two ways. In the tragic case of the insured's passing, it provides insurance coverage for the child and spouse. Second, after the maturity term, the investment produces market-linked returns that are paid in the form of a lump sum on maturity.

The Benefits of Child ULIP Plans
Child ULIP plans provide a variety of benefits, including:

• Flexibility: Child ULIP plans let you invest based on your risk tolerance. You may choose debt funds if you have lower risk tolerance. Conversely, you may invest in equity-oriented funds if you have greater risk tolerance.
• Tax-effective: Under Section 80C of the Income Tax Act of 1961, premiums paid for child ULIP plans are eligible for a tax deduction of up to Rs 1.5 lakh in a year. Additionally, under Section 10(10D) of the Income Tax Act of 1961, any sum received under a Child Education Plan is tax-free.
• Liquidity: Child ULIP plans have a five-year lock-in term. The policyholder may withdraw after the lock-in period if there is an emergency. However, it is always prudent to invest for a longer term for the greatest returns, even if the lock-in period is just five years.

2. Child Savings Plans
These plans resemble standard insurance or endowment plans, which combine a savings element with an insurance cover.

Child savings plans, depending on the terms and circumstances of the product, save the investor's money in certain debt assets like government bonds and fixed deposits to allow it to grow steadily.

The policyholder receives both assured and non-guaranteed returns at the time of maturity.

The Benefits of Child Savings Plans
Child savings plans are non-linked plans with stable returns. Investors can select these plans if they want consistent returns unaffected by market swings.

• Insurance protection: It ensures that, even in the case of the policyholder's passing, the family members would not have any trouble.
• Tax benefits: Section 80C of the Income Tax Act of 1961 allows for a tax deduction of up to Rs. 1.5 lakh per year on child savings plan premiums. A child savings plan's earnings are tax-free according to Section 10 (10D) of the Income Tax Act of 1961.

A child Education Plan is the best gift you can offer your child, apart from your love. To further appreciate the benefits of acquiring a Child Education Plan, consider the following:

1. Fulfilling Your Child's Dreams
When the time comes for your child to enrol in college/university, the fees will be much higher if you don't start saving now. If you have a plan for your child's education, you won't have to worry about their path.

2. Maturity Benefit to Aid with College Costs
With the cost of education increasing by 10-12% per annum, it is essential to begin saving money to meet your child’s needs. The job market today is incredibly competitive, so your child may have to be armed with multiple degrees to stand out from others. The maturity benefit gained from Child Education Plans can help you pay for your college of choice.

3. Options for Picking Riders and Add-ons
You must add rider advantages even if you have chosen the best savings option for your child. Some of the applicable riders include:

- Premium waiver benefits
- Personal accident cover
- Accidental injuries and death cover

4. Dealing with treatment costs
Child Education Plans allow withdrawals at any time throughout the policy's term, which is convenient. If your child becomes unwell, you can use the money to pay for medical care.

5. Death Benefits
The loss of a parent may leave a child in tremendous distress and leave their future uncertain. At the time of maturity, a Child Education Plan can help with future expenses as the payout is given in the form of a lump sum.

6. Income Assistance
A small number of the Child Education Plans provide children with a recurring income equivalent to 1% of the amount secured.

When charting how much you should invest in a Child Education Plan, it is important to understand the overall cost of education in India. It is estimated that the cost of sending a child to a private school between the ages of 3 - 17 years can reach Rs 30 Lakhs. Similarly, B-Tech degrees and BSc degrees can cost anywhere between 4 - 10 lakhs, while the best management colleges charge between Rs 8 - 23 Lakhs.

If your child is fairly young, it can be hard to estimate the cost of college, as young children are often unsure of their career paths. But, even with conservative estimates, you may need to save a corpus of 40 Lakhs when considering education in India. The corpus will have to be larger if your child decides to go abroad.

Based on the same, you can use a Child Education Plan calculator and input the interest rate offered by different policies along with the amount needed at maturity. It will then let you know how much you need to invest⁴

Even though various Child Education Plans are available today, you must consider a few things that may help you choose which Child Education Plan is ideal for your child's future security.

1. Use Financial Indicators as a Guide
Remember that you will only use your child's savings and investments in the future years. It would help to consider several financial factors when choosing a certain amount. Some of these factors include the cost of education, rising healthcare prices, inflation, and other financial worries.

2. Pick the Premium Waiver Benefit
Insurance companies often offer to waive the premium if the policyholder's untimely death during the policy term. However, in some cases, one needs to separately purchase a premium waiver rider to ensure that this happens. This helps you keep your insurance in force without placing financial strain on your family, particularly your child. When they reach adulthood, the child receives the full benefit promised.

3. Invest Sooner Rather Than Later!
The goal should be to start saving as soon as possible so that you can secure a higher return over the long run, regardless of how much you start with. Choose long-term options that can be paid for while your child is still in school so that money is not a factor by the time he/she is ready for higher education.