One such goal is creating a financially secure future for your child. The more you invest today, the better the future will be for your child. Investing in child plans can help you secure their future needs and requirements to the fullest.
What are Child Plans?
A child plan is a combination of insurance and investment under one roof. The insurance part helps you protect your child against any unforeseen event, such as your untimely demise. It ensures that your child receives a fixed annual payment from your insurer, as per the terms and conditions of your policy.
On the other hand, the investment component helps in fund accumulation through investment in various financial instruments. These instruments include equities, debt bonds, etc.
The child investment plans are divided into the following two categories:
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Child Endowment Plans
The amount paid by the investor in the form of a premium is invested in debt instruments selected by the company. You need to decide the payment mode in which you will pay your premiums. You can choose between a lump sum or a regular payment option. These plans have the benefit of less risk, which means the investments are not subject to market fluctuations and are a safe bet.
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Child ULIPs
The amount you pay as a premium is invested majorly in equity instruments. A small portion is invested in debt funds. Unlike the endowment plans, you have the freedom to select investment instruments. You can choose between regular or lump-sum premium payment modes. ULIPs are also called market-linked plans and help attain wealth accumulation, systematic savings, liquidity, and flexibility all at once.
What are the Advantages of Investing in a Child Plan?
A child plan offers the following advantages:
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As a Collateral Security
If you plan to avail a loan for your child's education, a child policy can act as collateral for the same. Thereby eliminating the need to possess any other collateral.
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As a Financial Support in your Absence
A child plan can support your child's needs in case of your unfortunate demise. After your death, the plan can help your child attain the ease of maintaining regular expenditure and support future dreams and aspirations.
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Medical Expenditure of your Children
Several child plans are there to secure your child's future along with providing coverage for medical requirements. This becomes essential if you have a history of family diseases or anticipated health risks.
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Education of the Child
The normal school education cost is around Rs 2 Lakhs. Eventually, this expenditure is bound to increase with rising inflation. Child plans can help you accumulate the amount you require to set apart for your child's higher education.
Why Must NRI's Invest in Child Plans in India for Best Returns?
The following features of child plans make them highly feasible for an NRI:
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Tax Benefits
The maturity proceeds are generally exempted from tax under Section 10(10D) of the Income Tax Act, 1961. You can also use the premiums paid for availing a deduction under Section 80C of the act up to Rs 1.5 Lakhs.
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The Availability of Riders
Riders are the additional benefits provided over and above the basic benefits of the policy. You have to pay a higher premium for availing of the rider benefits. Accidental benefits, critical illness benefits, etc., are some of the rider options available.
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Premium Payment Options
You have the freedom to select the premium payment mode at your convenience. You can choose between paying your premium as a single payment or you can choose the option of limited period payments.
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Flexible Payout Options
The fund invested by you is required at various stages, such as for your child's higher education or marriage. The child plan provides the benefit and ease of withdrawal at different stages as per your needs.
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Financial Security
Child plans offer substantial financial security to your child after you pass away. The life cover amount is paid in a lump sum, future premium payments are waived, and income protection is provided to the child.
Under ULIP based child plan, you can opt for the equity fund option to achieve optimum benefits over the long term. The return under this case can vary between 14 to 18 per cent. Systematic withdrawals can be made to ensure the fund flow at the desired milestones.
Some Child Plans in India for NRIs
Some child plans available in India in which NRIs can invest include:
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HDFC Click 2 Wealth
1% of the annualized premium is added to your fund value for the first 5 years. The policy can be easily availed even when your child is as young as 30 days old.
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HDFC Life YoungStar Udaan
Lump Sum payout of up to 140% of the sum assured and additional bonuses are paid on maturity. There are 3 payout options that have been designed to suit your child's various goals. These include the career, academia, and aspiration options.
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HDFC SL Young Star Super Premium
You have the option to choose between Save and Save-n-gain benefits. The funds can be withdrawn after 5 years of purchasing your policy.
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ICICI Prudential Smart Kid Solution
You can get life cover and premium waiver benefits to secure your child's future. Choose from equity, debt, and balanced funds to get better returns. You are also rewarded with loyalty additions and wealth boosters.
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LIC's Children Money Back Plan
The plan can provide regular savings with greater returns. When your child reaches the age of 18, 22, and 24, 20% of the amount is paid back as a survival benefit. It comes with several other benefits like death benefit, maturity benefit, and participation in profit benefit.
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Max Life Future Genius Education Plan
The plan provides financial security, guaranteed money-backs, the flexibility to invest, bonus options, and tax benefits.
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Max Life Shiksha Plus Super
It protects your family along with the continuance of the policy post your death. The policy term can range from 10 Years to 15 or 25 years. The policy also provides 6 fund options to invest in government securities, corporate bonds, money market, and cash instruments.
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SBI Smart Champ Insurance Plan
It is a participating life insurance plan. Smart benefits are payable in four equal instalments after your child turns 18 years of age.
What Are the Factors NRI's Must Consider While Investing in Child Plans in India?
A Non-Resident Indian must take care of the following factors while investing in child plans in India:
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Investments should be systematic
Plan your investment portfolio well in advance. List down the child's needs, analyze your financial ability and the time available for investment. Calculate the premium you wish to pay and the maturity benefit you aim to receive based on your requirements.
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Goals should be financially mapped
Your child has a variety of needs, from higher education to marriage or setting up their venture. Pre-decide the amount that you shall require for each of these expenses on a definitive basis. Calculate the expected inflation and currency depreciation over time to create an investment plan that shall not fall short.
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Insurance
The insurance component can protect your child from unforeseen risks. It ensures that your children are not in debt in case of loss of income due to any cause.
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Where to Invest
The most important decision to make is where to invest the savings to achieve maximum returns. Several insurers provide child plans for you to choose from. You must select an insurer who can cater to your specific requirements.
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Claim Settlement Ratio
It should be a crucial factor while investing in child plans. The ratio indicates all the claims applied and settled or actually granted by the insurer. The higher the ratio, the better the insurance provider is.
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The premium amount
Research and compare the premium amount payable across all the available policies and select the one that suits your budget.
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The add-on benefits provided
The insurers provide additional benefits apart from the basic features of the plan. Acquaint yourself with the ones that your policy provides and take advantage of the same.
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The terms and conditions of the plan
Different insurance providers incorporate different terms that should be read and understood before proceeding with the plan. It is best to avoid policies with complex conditions associated with them.
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The policy term
Securing your child's future for as long as feasible is important. At the same time, the longest policy can provide low premium rates. Therefore, policy term is a crucial factor that you must consider.
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The coverage amount
The coverage is subjective of several factors such as the income earned, insured's age, etc. Analyze everything and then choose a plan that promises to meet your maximum requirements.
In Conclusion
It is a parent's responsibility to find the building blocks of the dream your child envisions. Compromising on education or marriage can be best avoided by planning finances well in advance. Child plans are a great way to build a substantial corpus for your child's future goals. With several insurers providing such plans, even NRIs have sufficient options to choose their investment destination in India.
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