Everything You Need to Know About Child Education Plan
Introduction:
As parents, we always want the best for our kids, especially in terms of education, so the sharp increase in the price of school is concerning. In order to pay for their children's education, this has prompted many parents to look into different investment choices. Child education plans are one well-liked option. Child Education Plans are insurance plans that are designed specifically for parents who want to pay for their children's higher education costs. The interest of parents in these programs has grown throughout time as a result of rising higher education prices.
We'll see about child education plans, including their types, benefits, and suitability for paying for your child's higher education.
How Do Child Education Plans Work? What Are They?
Insurance firms offer investment-based insurance policies known as "Child Plans" or "Child Education Plans." These are promoted as investments that enable parents to put money aside throughout the course of the policy to pay for their children's higher education costs while also offering the child financial stability in the event of the parent's untimely death.
A portion of the plan premiums are used to offer life insurance, and the remaining sum is invested in equity or debt instruments to assist the child in saving for the costs of higher education. The parent is also covered by life insurance in the case of a child's education plan. When the child reaches the age of 18, these insurance policies mature, and the last payment is made.
Types of Child Education Plan:
Based on the sort of payout being offered, child plans can be divided into two groups. Which are:
1. Child ULIP Plans:
At the conclusion of the insurance term, these Child Education Plans offer a lump sum payout. Although the maturity proceeds of these plans can be utilized for any reason, the main objective is to provide money for the child for whom the plan is acquired to pay for higher education costs.
Like other Unit Linked Insurance Plans (ULIPs), child ULIPs invest in equity and debt instruments. The tenure offered is the only distinction between a Child Education Plan ULIP and other ULIPs. While ordinary ULIPs are available with policy durations of 10 to 25 years, a Child Education Plan ULIP pays out when the beneficiary reaches the age of 18.
2. Child Endowment Plans:
This kind of child education plan offers assured returns and life insurance coverage. After the child turns 18 years old, these plans normally start making 4 payouts that are each equivalent to 25% of the sum assured plus any relevant incentives. The level of risk in this kind of child policy is low because of the guaranteed payouts. However, the returns provided by these schemes are sometimes quite meager.
Key Features of Child Education Plans:
§
Life Insurance
Cover
§
Investment
Options
§
Lock-in Period
§
Charges
§ Tax Benefits
Child
Education Plan limitations:
§
Low Life Cover
§
Diversion of
Premium Paid
§
Few Investment
Choices
§ Limited Flexibility
Should You Purchase a Child Education Plan?
Due to the many restrictions placed on child education plans, it is preferable for the majority of investors to choose an investing strategy and a term insurance plan separately. In this method, one can receive a lot of life insurance at a good price and a lot more investing alternatives. Equity mutual funds are one type of investment that may be perfect for long-term financial objectives like funding a child's school.
The Systematic Investing Plan (SIP) investing option for equity mutual funds can be a good substitute for child education plans. Parents might use SIP to make comparatively little deposits over an extended period of time to build up enough money for their child's higher education. Furthermore, compared to Child Education Plans, Equity Mutual Funds have a much better potential to provide returns that outpace inflation over investment periods of 7 years or longer. In addition to this, investors have the choice to periodically examine the performance of their assets and make appropriate modifications as needed without incurring any fees.
While some people might be tempted to choose a Child Plan only because of the tax advantages offered, it must be remembered that having adequate money set up for children's higher education should come first. The achievement of the financial objective that is being sought through investment should always take precedence above tax benefits. However, ELSS Tax Saver Mutual Funds, which have a shorter lock-in term of 3 years compared to Child Education Plans, are an option for people looking for tax benefits.
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