The Buyt desk
As a parent, your children’s future plan is essential. A child plan is an investment cum insurance policy made to financially secure the child’s higher education.
Nowadays, education is a costly affair. Primary education fees today are equivalent to our school and higher education fees put together. We want the best for our children and we can do anything to give them the best of everything including education. You will be worried about your child’s college fees and their future. Parents hunt for different investment options which will fund their children’s higher education. One option to secure child’s future is Child Education Plans, these are insurance policies exclusively tailor-made for parents who are in search of an investment plan that funds their kid’s higher education expenses. Increasing higher education costs has sought the attention of parents in these policies.
What is a Child education plan?
Also known as a child plan is an investment cum insurance plan. These plans are available with all insurance companies. The insurance component of this plan is planned to protect the child from all unfortunate events. In case of a parent’s death, the child is paid a fixed amount annually. The investment component of this plan is planned to meet the higher education financial needs of the child. The accumulated amount through premiums is invested in various instruments by the insurer.
Types of Child plan
1. Child ULIPs – A Child ULIP works like any normal ULIP plan. A part of the premium is invested in funds and the rest in shares. The policyholder has the freedom to choose how he/she wants to invest their money as per their risk appetite and investment style in equity instruments, debt instruments or a blend of both. A lump sum payout is made at the end of the policy term.
2. Child Endowment Plans – Child endowment plans are guaranteed returns, savings cum life insurance plans. Parents who have a low-risk appetite and want to grow their savings in a systematic manner go for this plan. Once the child is 18 years old, 4 payouts of 25% of the sum assured with added bonuses component are made.
What are its key features?
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The child plan has a built-in Life Insurance Cover.
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It is a good investment option to secure a child’s higher education.
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The Lock-in period is just 5 years and policyholders can withdraw after that.
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Policyholders should pay around 7-8% annually to the company as charges for managing your policy.
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Under Section 80C of income tax, tax benefits can be enjoyed on premium paid. Payouts are tax-free if the annual premium was less than Rs.250000/- else it will be subject to applicable Capital Gains taxation rules.
What are the limitations?
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The maximum life cover provided by Child Plans is just 10 times the annual premium payable, which is very less compared to our insurance plans.
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The entire premium paid for a Child Education Plan will not get invested but a portion of it is paid towards providing life cover to the insured individual. Also, many charges are to be taken care of.
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Policyholders have limited investment options through ULIP and endowment plans.
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Limited Flexibility as the lock-in period is 5 years.
Should you invest in a child plan?
After having a look at the limitations, you will have a fair idea that having insurance and investment as separate plans is better than this combined option.
