Child Education Plan and its Benefits!

What is Child Education Plan?

A child education plan is an insurance policy that offers protection as well as an opportunity for saving money to ensure a secure future for your child. It makes sure that your child receives the education he/she desires with a lump-sum payout at maturity or when any unfortunate event occurs to you.

Why should you buy a Child Insurance Plan?

As a parent, you want to fulfill your children's dreams and save money for their education, marriage. Child insurance plans not only help you build a corpus towards these goals but also protect children's future in your absence. Therefore they are a good solution for someone who wants to work towards these goals and minimize risk at the same time. Some of the other benefits of a child plan are: Use as a collateral - If you plan to avail an education loan for your child in the future, then you can use the child insurance plan as collateral. Partial withdrawal - If the child is hospitalized due to a medical condition or accident, these plans allow you to withdraw a lump sum amount from the yet-to-mature policy. This pay-out will act as an add-on to your health insurance plan. Tax benefit – As per the existing tax laws premiums paid towards child plans are exempted under section 80C of the Income Tax Act. Maturity benefits are also exempt from tax as per section 10(10D) of the Act.

Features of a Child Plan

Generally Child Education plans provide the following features-

• Lump-Sum benefit: The plan provides your children with a lump-sum benefit if in case you pass away within the policy term.

• Waiver of Premium: Your child won’t be burdened with premium payments as the company pays it on your behalf. Thus, the policy continues to exist.

• Partial withdrawals: You can access your funds during the term in the form of partial withdrawals, subject to conditions. This takes care of your child’s different educational milestones.

• Tax Benefits: Such a policy offers tax benefits to the policyholder under section 80C of the Income Tax Act^.

• Loyalty addition and Wealth Booster: These plans may also offer benefits such as Loyalty Addition and Wealth Booster, to help you grow your money without needing you to invest extra money.

What are things to consider while buying a Child Plan?

Financial goal and cover amount – The first step is estimating the amount of money you will need to fulfill your child's interests, aspirations. For instance, if you are buying the policy for your child's education, factor in costs towards extra-curricular activities, travel, boarding etc. in addition to the course fee. Use this future expense calculator to ascertain the inflation-adjusted amount you should aim for. Policy term – A child plan can be purchased for a tenure varying from 15–25 years. Choose a policy term that coincides with an important milestone for your child. For instance, if your daughter is 2 years old today and you expect her to start her college at age 18, buy a policy with a term of 16 years. Fund options – Most child insurance policies offer multiple fund options with varying degrees of risk (equity-debt allocation). Based on your financial risk appetite and investment tenure, choose the fund that meets your requirements.