Key Features of a Child Education Plan
A child education plan can be any savings or investment scheme that provides enhanced maturity benefits due to the long-term investment. Conventionally they are life insurance policies specifically created for children under their names. But people use several other high return schemes as child education plans. Given below are some key features of a child education plan.
Several financial advisors recommend starting a child’s education plan as early as possible. Early investing will only increase your yields because of compounding. It means even if you start investing with limited periodic payments, you can accumulate large funds because of the long investment duration.
Another benefit of a long-term investment is that it is not subject to the constant market fluctuations seen in short-term investments. As markets will correct themselves every now and then, your long-term investment is only bound to increase due to the ever-increasing economy.
The main feature of child education plans is that they give assurance on the invested capital. Several investment schemes have high returns, but they do not have guaranteed capital returns. This is because the value of the product invested can go lower due to plenty of external factors. Insurance-backed plans do not have this problem. They can guarantee covers as well as the return of the invested capital.
High Interest Rates
Child education plans have some of the highest interest rates in general. For example, the average interest rate of fixed deposits is around 7%, but child education plans usually have a 10 to 13% interest rate. This huge leap in the interest rate over a long duration can compound your wealth swiftly.
All insurance plans, especially child education plans, have tax exemption on income tax under the Indian Income Tax Act of 1961. You can claim up to INR 1,50,000 per annum for contributions made to premium payments for child plans. Even the maturity returns from these plans have tax benefits. Some have higher slab thresholds and low tax rates, and some don’t even tax on repayment of premium payments.
You can enjoy tax-free benefits only on the repayment of money from the company, which is equal to the total money paid. Any interest over this limit will attract taxes. But the government gives tax-free interests for high-risk insurance policies, like ULIP and bond-dependent policies. It is to endorse the sales and encourage people to invest in these high-yield policies.
Withdrawals and Loans
Another great feature of a child education plan is that it gives you liquidity of invested amount. In case of any financial or personal emergency, you can withdraw money invested to date from the scheme. But there is a condition that you can only withdraw around 80% of the balance in your account.
Another liquidity benefit is that you can take a loan against the maturity amount. So even if you are a new investor who hasn’t yet accumulated adequate funds, you can get the money in order to fulfil your unexpected expenses.
Low Handling and Maintenance Charges
Another impressive feature of child education plans is that they always have low maintenance charges. These also include policy initiation and claim/maturity settlement charges which are some of the pricey charges in insurance.
Why Is Investing in A Child Education Plan Important?
Having a child’s educational plan is a necessity. By investing in such a plan, you are securing the chances of your child pursuing their dreams. As a parent, one cannot predict what their child wishes to be when they grow up. Parents need to wait until the child reaches the late teen years to understand their strengths and weaknesses in education. Different children of the same couple can have different preferences when it comes to education.
Most of the technical educational institutions in India are costly, especially in quality education imparting educational institutions. So, when your child grows up and wishes to pursue a particular field of study and doesn’t have enough funds to follow their will, it can affect their career. As it is seen that going into preferred fields of education makes children more capable of becoming successful in that particular field. With an adequate fund generated from a child education plan, you can provide for this highly expensive stream of study for your child.
Most of the higher education scholarships are only for academically achieving students. These make children lenient towards scoring high rather than giving importance to learning or emotionally growing. Having such funds also makes them self-dependent and not worry about grades. Several students who pursue education just for the sake of extra-curricular activities in the university also take benefit of these plans. It allows them to gain admission to the university even with low marks and no sports scholarship availability.
Children can learn several things from you during this process. They learn how to plan for their future expense well in advance and avoid debts. This will help them in the later stages of life, where they will have to make a decision for others. It will help them to grow as self-reliable individuals.
Child Education Plan Benefits for The Parents
After discussing the important features of child education plan, let’s come to how they benefit you. Parents don’t particularly look for benefits while providing for their children, but these benefits are bonuses. These benefits can substantially reduce the financial and mental burden that constantly hangs upon you while raising children. Given below is a brief discussion of some of the essential benefits that child education plans have for you as parents.
Decreased Income Tax
Because of the several tax exemptions on child education plans, the income tax that you pay can be much lower. These exemptions allow you to invest your hard-earned money for your children rather than paying them off like taxes. It will allow you to spend more money on your children, giving them a better lifestyle.
Less Tension About Multiple Children’s Education
With child education plans, you can gradually increase your savings for children’s education. Most plans have low premiums when started early, so you can easily plot education plans for multiple children. And this won’t even cause much disturbance to your present economic position.
Having an insurance plan as a child education plan will give life and health coverage to your child. These will assist them in times of unexpected events. Usually, health insurance cover comes as an add-on along with the child education insurance plan. You can get coverage for accidents, chronic diseases, accidents, or several critical illnesses with health cover.
An endowment is the greatest benefit of insurance policies used as child education plans. Because of endowment, one can purchase a policy in their name and keep the child as the nominee. And in case of the sad demise of the parent, the maturity benefits go to the child. This endowment money provides your child enough funds to cover their educational and living costs till they start earning money.
There are even options in receiving endowment money. You can choose to get it in one go or monthly payment. The latter option provides part of the money as a lump sum and the remaining as monthly payments. It is good to have such regular pay-out schemes rather than one-time payments due to safekeeping risks and the inability of young children to manage high sums of money.
Sometimes bright students get scholarships and assistance from various institutions providing free education. Your child won’t require the corpus money from the educational plan in such a case. Then you can keep these returns as savings for your child to meet the expenses of other important life events.
Sometimes people with financially sound backgrounds who don’t require educational plans for their kids also buy these plans. The high returns and several monetary savings attract these people to use child educational plans as personal investment funds.
Teaching Savings Mentality to Children
With an effective educational plan, you can teach your child the importance of saving money and creating a budget for future expenses. You can show them how a savings mentality helps a family when faced with financial uncertainties through such schemes. And eventually, make them financially responsible people who know how to manage and spend money cautiously.
You can gain a large corpus through small premium payments with effective planning. After knowing these important features and benefits of a child’s educational plan, you must now have a thorough understanding of how it helps your financial stability. More than that, it also gives you emotional stability by reducing your tension regarding your child’s education. Having sufficient funds will also make your child free to choose the educational stream they prefer and move forward with it. Thus, providing the parent and the child peace of mind.