What are Child Plans?
A child plan is a financial product that provides you with an opportunity to create wealth for the future. These plans help your child to achieve their future financial goals. Several people often use life insurance plans like child plans because they are secure and help safeguard capital for the future.
According to the experts, every parent should invest in child plans because they would be of significant help in the crucial times in your child's life. If you plan well, then you can accumulate wealth and create a good corpus. With its help, you would be ready for any predictable and non-predictable occasion that comes in your child's life.
Types of Child Plans
There are several children plans available in the market. You can customize a child's plan as per your preferences. The insurance companies also have various by-default plans which cater to different priorities and requirements. These have classifications based on age, family's financial background, investment potential, and required term duration. Here are some of the popular child plans that you can choose.
Regular Premium Child Plan
A regular premium child insurance plan is a common type of child insurance plan. You have to pay regular premiums for a particular period in such a child plan. Depending on the child's policy, you are given an option of paying premiums yearly, quarterly, or monthly basis. Limited-income households can benefit from these schemes as they don't need to gather huge one-time premium payments.
Single Premium Child Plan
In a single premium child insurance plan, you must pay a lump sum as a single premium at the beginning of the policy term. It makes these plans similar to fixed deposits. People only seldom use these plans as accumulating such high amounts can be tough. The ones who invest in it are people who unexpectedly gain a large sum of money from any source. They can use the immediately unwanted money in planning good education for children.
ULIP Child Plan
Unit Linked Insurance Plan is an instrument that invests your insurance premium payments into bonds, all the while providing you insurance coverage. Thus, combining the benefits of insurance and securities investment. Choosing ULIP depends upon your risk and high-return yielding appetite. ULIP typically features a higher life cover, periodic payment option, and investment in the equity market. Other major benefits of ULIP are maximum income tax deductions on premiums, tax-free returns, dynamical interest rate, and guaranteed return on investment.
Child Education Plan
A child education plan is an insurance policy that is solely beneficial for meeting educational expenses. It has double the benefits of life insurance or most of the investments through which you can get a hefty sum for your child. At the time of maturity, this plan can provide you a lump sum amount that you can use at important educational milestones of a child's life like higher education, international studies, relocation abroad, profession & certificate course, etc.
Endowment Child Insurance Policy
Endowment child insurance policies are a well-known type of plan. It has the combined benefits of savings and financial security. For this the premium papers must be clear and you need to pay premiums without fail during the premium payment term. And in case of the sad demise of the family's earning parent, the child will get endowment benefits from it. The child may also get bonuses payable at the time of maturity as pre-decided by the insurance company.
Benefits of a Child Plan
After understanding the types of plans available as child education plans, go through the benefits. They will give you a clear idea of how you benefit from such plans. While most of these benefits are financial, you can gain overall peace of mind knowing that you successfully and efficiently provided for your child's education.
Protect Your Child from Unexpected Incidents
The most important thing that a child plan gives your child is financial security. With the possibility of partial withdrawal and loans, these funds secure a child's future against immediate emergencies that require huge money. And in case of the demise of parents, the claim benefits will give enough funds to your child to meet educational and day-to-day expenses.
It will ensure your child has a secure future even in your absence. The child insurance plans will help the children to continue living their lives unhindered and take care of their expenses without depending on anyone for financial assistance. Such independence fosters a mentality of self-reliance in them, thus developing a responsible character.
Financial Support for Higher Studies
Every parent wants the best of everything for their child, especially in education. It is necessary to create strong financial support to make their career dreams come true. With a good child education plan, you can gather enough funds to sponsor your child to pursue the educational field of their choice. Thus, increasing the chances of their children’s success and growth through educational plans. The child insurance policy can also act as collateral against education loans. And you can use the maturity benefits to pay off the education loans.
Create an Essential Corpus for Career Development
You cannot be sure which field your child will pursue in the early stages of their life. And it would be best if you had a corpus for the expenses in fulfilling the child's dreams. Your child can have an interest in education, sports, arts, or entrepreneurship, based on their likings. With the funds from the plan, you can accumulate enough funds to meet the expenses of any career option your child chooses. A child insurance plan provides you the benefit of guaranteed payouts and assured returns, giving your child enough funds to pursue whichever career choice.
Profitable Investment Option
You can also use child plans as an investment option so that you can pay premiums in small chunks for the long term and use it for major future expenses. With a policy term of at least 15 years, the duration of investment in child plans is more in comparison to most plans. This long duration can substantially increase your capital and returns. So, people often invest in such plans even if they are capable of paying for their child's educational expenses.
There are several tax benefits and relaxations to parents who invest in child plans. Under the rules of the Indian Income Tax Act of 1961, a tax deduction of up to INR 1,50,000 for the premium paid on a child plan is available. This benefit is mostly provided in a child education plan.
There is also a tax exemption for the maturity amount equal to the premiums paid and comes under the category of repayment. It is because repayments do not have taxes on them. Some insurance policies also give a tax-free return on investment, meaning you don't have to pay taxes on the interest and bonuses. Please note that tax laws are subject to change from time to time.
How To Compare Various Child Plans?
There are many insurance companies available, and each one has different child plans to offer. If you do not compare best child plans before buying, you might lose out on some important benefits or lower premiums that other companies may have. You can take advice from financial advisors or insurance agents to perfectly compare the plans as they will have the maximum information on any policy. Given below are some of the criteria for comparing child plans.
High-Returns with Low-Risk
Most investment plans that give high returns have high risks involved. It is because most high return-yielding policies depend on the market. When the market conditions fluctuate, the value of your capital also fluctuates. So, look for a plan that does not have any market dependency while providing high-interest rates.
Look for plans that have a longer duration. Longer duration plans can accumulate huge returns at the term-end.
Extensive Life and Health Cover
Most insurance covers are subject to certain rules mentioned in the terms and conditions. So, see that the cover you get is extensive and provides enough claimable occasions.
As mentioned earlier, an endowment can benefit your child a lot. So, make sure that the plan has an endowment clause and you do enlist your child as the nominee.
Multiple Tax Exemptions
Look for plans under which you can claim the maximum tax exemption. Tax exemption allows you to divert money paid as taxes into your child's educational funds.
Sometimes insurance providers provide very low premium payments to attract several investors, but those might not have a return of investment. Most health insurance policies also don't return the invested premium at the term-end. Make sure the plan you select does not have similar terms.
Ensuring that you have enough funds for a child's future should be the number one priority for every parent. By doing so, you can secure your child's future and provide financial support at important stages. Even small premium payments over long durations can gather enough funds to meet any major future expense. So do invest in child plans today itself to rest assured while securing your child's finances.