How Should You Plan for the Child's Education?

What is a Child Education Plan?

The child education plan is a combination of insurance and investment. It helps you build a financial corpus for a bright and secured future for the child.

The insurance component provides a life cover that would help to secure the child's future against eventuality. The investment component helps you accumulate funds over time, which will be provided in the maturity benefit.

How Should You Choose the Child Future Education Plan?

The future of a child is important for every parent. While selecting the plan consider the following factors and make an informed decision:

1. Estimate the Education Cost

   It is impossible to know what your child will do after completing his/her schooling. However, as parents, you can make slight assumptions and get an idea of their possible inclination in life. 

   You must calculate how much funds will be required to pursue the career they might wish for. The higher studies overseas and in India will cost approximately 7-8 times higher than what it costs today. And not just the cost of academics you need to factor in the costs of extracurricular activities as well to build their skill set.

2. Waiver of Premium Benefit

   WOP stands for waiver of premium rider benefit, which usually comes as an inbuilt rider with the base child insurance plan. This specific rider is important as it protects the policy from getting terminated in case of non-payment of child insurance premium. This is possible in case of any unfortunate event such as the passing away of the parent. Under such a circumstance, the future premiums will be waived off by the insurer, however, the plan will remain active. If the rider is not included in the base plan, it can be added by paying an additional premium. 

3. Evaluate Policy Tenure

   You must be very strategic in determining the right policy tenure because in case of the wrong term, either you will fall short of funds or you will have to wait for more time. Both the cases will fail your investment because the child plan will not come to use when it is supposed to.

   Remember that your policy term should be according to your child's current age. Suppose if your child is 4 years old at present, s/he will pursue higher education in the next 13-14 years. Then, you must get a child insurance plan with a policy term of at least 11-12 years.

4. Evaluate the Risk Appetite 

   It is important to understand how much money you can risk for how long to get approximately your desirable returns. Since a child education plan comes with an investment component it becomes quite certain that your risk appetite will play a vital role.

   If you are someone with a low-risk appetite you must go for endowment child plans. It will provide you with sufficient cover and ensure the protection of your funds against market fluctuations. Endowment plans act as a combination of insurance and as well as savings.

   If you carry a high-risk appetite you can try the unit-linked child plan with an equity fund investment option. It is believed that long term equities tend to provide good returns, which then helps your child plan fund to grow.

5. Partial Withdrawal Option

   There might come a time during the policy term that you would require financial help to meet urgent educational or healthcare expenses. If your child policy has a partial withdrawal option for you it'd be a relief in times of need. Make sure to check for this clause in the policy documents while buying a child investment plan.

6. Read the Terms and Conditions

   While buying a child insurance plan, make sure to go through the term and conditions of your plan along before making the buying decision. You will be able to understand how the plan is going to benefit and how it will function over the years. You can compare all the terms and conditions of the child future education plans online to make an informed decision.

What are the Features of Child Education Plan?

Take a look below to understand the following features:

1. Premiums Payment Frequency

   You will have an option to pay premiums annually, bi-annual, quarterly, or monthly. You can also choose to pay premiums for a limited period.

2. Sum Assured

   Your child is entitled to receive a sum assured in the form of maturity benefit if you outlive the policy tenure or as a death benefit in case of your untimely demise during the policy term. It is advisable to opt for a plan with a sum assured amount 10 times higher than your current annual income.

3. Maturity

   The maturity amount should be chosen with an eye on the future. Assuming your child is 8 years old, and his policy will get matured in 10 years you should consider factors such as inflation and interest rates. In case you do not consider factors like these, possible the released funds might fall short of the requirements in the prospective time.

   Also, plans such as the single premium plans might not provide appropriate maturity benefits and features, so before you apply kindly check the policy documents.

4. Maturity Pay-outs

   While buying a child plan you can choose whether your child should receive payment in lump sum amount or via annual instalments. This will be an organized way to receive maturity benefits and utilize the same as per ongoing requirements like college fees, funds to start a business, etc.

5. Riders

   Adding a rider to your base plan can enhance the overall coverage and provide additional benefits during the policy term. The common riders, which almost every insurance provider offers with a child education plan, are waiver of premium, critical illness, and accidental permanent/ total disability. Some insurers include at least one add-on in the base plan without charging any extra premium. 

6. Tax Benefit

   A child education plan offers a tax benefit on premium payments and maturity/death benefits under section 80C and section 10(10D) of the Income Tax Act 1961 respectively.

   Note: The tax benefit is subject to change as per the existing laws.

Wrapping it Up

We can sum up that investments are supposed to be helpful in emergencies and the long run. This is why while buying a child investment plan you must use a systematic approach from the beginning.

The child future education plan will never leave the apple of your eyes in any financial distress. Compare the child plans online to determine, which one is suitable and fulfils the requirements.