Education is an essential gift that you must give to your child. However, education, especially higher education in India and abroad consist of several expenses. Sometimes it can be hard for families to arrange such huge amounts at a time. They utilize several financial tools to provide this huge sum, and a child education plan is one of them. Child education plans are a great way to save money for your child’s education and other future expenses. Do keep reading to know about child education plan and their importance.
Importance of Good Education for Children
No one needs to explain the benefits of a good education. If you are able to read this, it is only because of education. And the fact that you are looking forward to knowing more about providing better education to your child through a child education plan means you know how important it is. Education is helpful for learning about the world and also about ourselves. Through quality education, you can develop a good character in your child. There are several other benefits of education. Given below are some of the major advantages of having a good education :
- Education provides great personality development to children through discipline and practice.
- Students learn a lot of general knowledge in the initial years of their education which gives them the knowledge of the world where they live.
- The activities and sports at the school boost physical growth in children.
- A child can gain overall growth through mental and physical growth with education.
- In higher studies, children select a stream and learn about it in detail, making them experts in their field through training.
- Having a good education is always beneficial to gain more employment opportunities.
Apart from the points mentioned above, Form 26AS also provides the taxpayer with the information on
Child Education Plans and Their Types
Child education plans are mostly insurance schemes that provide insurance coverage and sometimes investment possibilities. You can only start a child education plan for minor children as most of them don’t allow beginning a plan after 18 years of age. These plans are specifically designed to provide for the expected occasions in a child’s life rather than just education. There are several relaxations and monetary benefits of child’s education plan.
One of the main attractions of a child education plan is that it gives assured returns upon maturity. This great feature attracts a lot of parents to start an education plan for their children. Life insurance, in general, was already a favourite financial instrument in India that provides tax benefits and life coverage. But with the circulation of child plans in the market that gave boosted benefits, people swiftly turned towards those.
Child education plans have several types based on the insurance provider and your requirements. You can choose several plan constraints to modify the plan according to your future monetary needs and current financial status. Given below is a brief discussion of some of the popular child education plans.
Simple Life Insurance
General life insurance is a policy that anyone can join. There are no criteria that only children can join, age limit, or family economic status. While these schemes have lower benefits in comparison to specific child plans, some people prefer these if they get any extra discounts or offers. As most of the tax savings and return on investment benefits are common, there are not many differences.
Unit Linked Insurance Policies
ULIPs are insurance instruments linked with bonds and/or equities that give them the prospect of investment. These are volatile investments but with relatively low risk factors. They guarantee the interest rate that you will get at term-end. This is usually higher than the prevalent FD and savings scheme interest rates.
Endowment plans are insurance policies that give endowment or regular payments to the nominee in case of the sad demise of the policyholder. In these plans, parents are the policyholder and keep their children as their nominees. So, if anything unexpected happens to them while they are supporting the child’s education, the endowment money from the policy is sufficient to bear the child’s future expenses. It is a good mode as it does not give a lump sum to adolescent children who may not know how to manage their finances. With this low number of monthly payments, children don’t need to worry about the safekeeping of a large sum.
Other Banking and Financial Instruments
Apart from insurance schemes, there are several other banking and financial instruments that people often use as a child education plan. Some of those are FDs, RDs, saving schemes, cash certificates, post office schemes, gold, assets, shares, mutual funds, bonds, etc. Some of these schemes that are market volatile provide very high returns but have similar high risks. People often don’t prefer them, even with their potential to provide a great return rate percentage.
The Essential 8 Benefits of a Child Education Plan
Each child’s education plan provides different types of benefits based on the add-ons and features you choose. It is because most insurance providers allow customization of the policy depending on the policyholder’s requirements from the policy. Most of the benefits of these plans are monetary, as the purpose of investing in the scheme itself is accumulating funds. Continue reading to know more about the major eight benefits of a child education plan in detail.
Ample Education Fund
A child education plan will provide you with the impressive returns. It is because of the numerous financial relaxations included in the plan. With this huge fund, your child will never have to compromise on their education preference. And there are no limits to the success they can achieve if they get to pursue their preferred field of education. Through this fund, they can become self-reliable for the educational expenses. And because of this prearranged fund, they won’t have to worry about the financial burden on their family due to their education.
Maximum Interest Rates
Child education plans have one of the highest interest rates. Even though they are not as much as senior citizen insurances, they are great enough to beat others in comparison. With such high interest rates, your total benefits from a single plan will only increase when considering the long-term advantages.
Several Tax Savings
As these plans are for children, the government gives several incentives and benefits. One such benefit is tax deduction in income tax for payments made towards child plan premiums. You can claim deductions up to INR 1,50,000 annually for premium payments. Some insurance policies like the ULIPs provide a return on investment. The returns obtained in this manner and the invested capital are completely tax-free. So, you can save a lot of taxes on both premium payments and investment returns.
The greatest benefit that a child education plan gives is that while it gives an opportunity to invest in your child’s education, you also get life cover. Life cover is important, and everyone must have it. It gives you financial relief in times of the sad demise of a family member.
Optional Health Coverage
Health coverage is also an important feature of a child’s education plan. Most plans have the benefit of adding health insurance for a very nominal rate. So, you won’t need extra health insurance to provide health coverage for your child. You know how health insurance provides necessary assistance in times of unexpected medical incidents. With child plans, you can ensure the health of your child with coverage that covers several critical diseases as well.
Another great benefit of a child education plan is that it allows partial withdrawal in case of emergencies. It makes such plans beneficial in case of any financial emergencies in the family where you need huge sums at a time. You can get a loan of around 50 to 80 % of the surrender value with a partial withdrawal. Surrender value is the amount of money you can have invested in the plan to date, including the interest and subtracting all the handling and processing charges. This partial withdrawal from the plan allows you to have liquid cash in times of need.
Substitute Backup Fund
If you don’t require the money from an educational plan for any reason, let’s say if your child receives a scholarship, you can always use it as a backup fund. You can use this fund for any other requirements that come along in your child’s life. This backup fund can also be helpful for the future of your child for their business needs.
A major benefit of a child education plan is that there is a guarantee on the invested capital. Even if market volatility causes inflation or the insurance provider incurs losses in the future, you will assuredly get back the entire invested capital. And unlike fixed deposits where the maturity returns are taxable, the returns from child plans are fully tax-free.
Now you must know the major benefits of a child education plan. Having a sound education plan will mitigate all your financial woes of providing quality education to your child. You could rest assured and never have to worry about gathering such high amounts if you invested in such a plan as early as possible. It helps you focus more on other important aspects of the family and your career. So, join your child in a child education plan today itself to secure their future and your peace of mind.
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.