Spend, Save and Invest Smartly
The Child Education Policy is a life Insurance product specifically designed as a savings tool to provide an amount of money when child reaches the age for entry into college (18 years and above). The funds can be used to pay for your child's higher educational expenditure. Under this policy, the child is the life secured, while the parent/legal guardian is the policy owner. If one can opt for a pay or benefit rider, the education policy also provides promise that, in the event of the policy owner's untimely demise, the child will have access to the money to help finance his or her studies. Child Education Plan is a single way to save for child's future. To fulfill child's dream & aspirations, commence by making small investments in a Child Education Plan for a short tenure and receive regular payouts for the rest of the tenure in child’s future for a fixed period of time.
Primarily there are two type of child insurance. They are :
Average size of the households that save for children education is 5.5 members with an average of 1.5 children going to school. These households spend around 5.2 to 5.5 per cent of their income on education expenses. On an average these households save another 10 to 12 per cent of their income for children. If your child is in kindergarten, you can invest commonly for the next 5 years and thisInvestment plan will take care of his primary education. If your child is in secondary school, make a small investment every month for the first 6 years, in a plan of 10 years’ tenure and get a reasonable annual payout for the next 4 years and fulfill your dream of seeing child graduate from a great college. Child Plans basically work like an endowment plan. Which means, on maturity of the policy, a fixed amount is returned to the parent. This is how it works. The parents pay a premium for a policy. This policy is operational for a number of years. If the parent dies, the child gets the sum assured (amount the policy has been taken out for). If the parent survives, the sum assured is handed over on maturity of the policy. If you want a huge lump sum when their child turns 15 and is all set to go to college. So you should buy a 15-year policy when your child is born. When your child turns 15, you will get the money and can use it for whatever education expenses you saved it for. Such policies cover the life risk for a particular period and at the end of this period, the sum guaranteed is paid back to the policy holder.
Basically there are two kinds of Child plans; Endowment and ULIP
ULIPs vary from conventional insurance in the way they invest your premiums. Unlike endowment plans that invest mainly in government securities and corporate bonds ULIPs can also invest in equities.
The cost of higher education is rising. The need for access to higher education and the cost will put a financial strain on you and your family. That is why it is significant to start planning for your child's education as soon as possible, because the earlier you begin, the more time you allow your money to grow. The Child Education Policy will provide the funds needed by your child to pursue further education and assures that whatever happens in the future, your child will still have the means to pursue some of his/her goals in life.
Look for a policy that waives premium payment in the event the parent/legal guardian can no longer pay for the policy, arising from events such as unfortunate death, diagnosis of a critical illness or total and permanent disability. By opting for the payer benefit rider, your child's education fund will be taken care of should anything happen to you as the parent/legal guardian.
After you buy a policy, you need to monitor it to ensure that you are on your way to reaching your goals. Actual returns declared by the insurance company may differ from initial illustrations due to changes in financial markets. You may also find that the actual cost of higher education may differ as the course selected by your child is different from the one initially planned, or currency exchange rates may rise and fall if an overseas education is preferred. If there is a deficit in the funds required, some policies do provide an additional benefit of a study loan.
One of the advantages of using life insurance as a savings tool for a child's education policy is the tax benefit. Insurance proceeds are tax-free and you can also obtain an annual tax relief for the payment of premiums for education insurance.
Saving through Insurance disciplines a person to regularly continue putting aside money year after year. It is a long-term process and therefore, you need to be practical in estimating how much you can afford based on your current income and expenses. If you start on an amount bigger than you can afford, you may end up having to terminate the policy early and invite financial loss. So, if you cannot afford much now, start with a small amount.
Many Children’s education policies also offer the ability to add insurance coverage like hospital and surgical medical insurance, or critical illness coverage. Be careful about adding too much insurance coverage as the costs will affect the amount of savings. Furthermore, bear in mind that you are insuring the life of your child, and certain coverage like critical illness may not be essential as the likelihood for such illness in children may be minimal.
Those who sign up for Child Insurance Plans with a longer tenure for maturity can go in for the unit-linked insurance plan option. Besides exposure to equity, a unit-linked insurance plan also offers a number of flexible features such as discontinuance of premium without the risk of loss of cover and change from one investment option to another, among various other things. More importantly, it gives the investor the advantage of a higher life cover as compared to a traditional plan. However, it would be advisable for younger parents to go in for it as mortality charges would be lower. Also, one should have premium payment tenure of at least 10 years for a Child Plan, failing which the product can be expensive.