If you are a parent, you must constantly worry about gathering enough money for them to meet future expenses. But due to several risks and the instability of the market, there are only a few investments that will provide you assured returns. A child insurance plan is one of the best ways to invest money for your child. Read on to know which features make child insurance plans an excellent investment.
Investment Plans for Children
When it comes to investment for children, people choose various schemes capable of accumulating wealth over a long period of time. While most of these schemes are low risk, they all assure the return of capital, and some also give high interest rates. People choose these plans as per their financial requirements and the duration they are okay with waiting for the returns. The returns are a must as these plans are for their children, and there can be no room for losses. The points given below briefly discuss various investment schemes that people choose for child investment.
There are several deposit schemes from banking and non-banking companies. These deposit schemes have the highest interest rates if they are child-specific deposit schemes. The frequency of payment, interest rate, returns, and maturity date can vary as per the necessities of the customer. A great feature of such deposit schemes for children is that they have several tax benefits compared to regular deposit schemes.
Savings schemes are available in banks, post offices, chits & funds companies, NBFCs, etc., where you can contribute monthly or annual payments. These payments then accumulate in the account and attract high interest rates. While these interest rates are lower than deposit schemes, they are high enough to beat inflation when the customer gets the money back at account closure. The government also gives several relaxations and benefits for child savings schemes. Many savings certificates with onetime payments, a fixed maturity date, and a high-interest rate also exist.
The government directly introduces and manages these schemes from time to time. While most of these schemes are for the girl child, some also have provisions to invest in boy children as well. Some schemes require a very low premium and provide high returns with contributions from the government. Several relief funds and assistance funds also give returns with zero payment.
Purchasing assets is also a good mode of investment for children. Most of the time, the value of properties tends to rise constantly with the passing years. So, when you sell a property after a few years, the profit can be several times higher than any savings or deposit scheme. Sometimes in well-developed areas, the profit can be equal or greater than the invested money.
You cannot legally transfer assets to a minor child’s name, so you will have to purchase assets in your own name. And having several properties can adversely affect the final tax amount that you pay in the ITR. This is the drawback of investing in properties and real estate.
Gold or Sovereign Bonds
Gold is one of the oldest modes of investment for children. Even from the historical times’ families gathered wealth in the form of gold to distribute among the children when they grew up and pass it on as their heritage. The benefit of investing in gold is that even though recession and inflation affect it in the long term, the price will increase no matter what. Nowadays, there are several Sovereign bonds and e-gold schemes where you don’t have to deal with storing and safe-keeping actual gold.
Equity, Bonds, Mutual Funds
Equity, bonds, mutual funds are high-risk schemes that also provide high returns. Sometimes these returns are more than any investment scheme, and that too within a short span of time. The risk in these schemes is due to the market and performance dependency of the investment. But some nationalized bonds have a guaranteed interest rate which can go higher but not lower.
Insurance plans are the most trusted health/life coverage schemes that also provide the bonus benefit of investment. You can claim many relaxations for investing in insurance schemes, even more if the schemes are children’s schemes. For this reason alone, the insurance companies have specific child insurance plans. The next section provides a detailed discussion on a child insurance plan.
What is a Child Insurance Plan?
A child insurance plan is an insurance plan, but it has more financially helpful features for kids. Usually, they have age criteria of about 5 or 12 years ago, and you can get a child insurance plan only when your child is within this range. Before purchasing an insurance plan, compare and verify the prices to ensure maximum coverage with the lowest premium.
The procedure to start an insurance policy for your child is also simple, as you will only need a few documents. After finding out the most suitable insurance provider and plan, visit their official agent to know the required documents. Arrange and submit those documents along with the insurance application and premium amount. And you will receive the policy papers within a few days from the office or via mail.
Most child insurance plans are from private or nationalized insurance companies. But in India, you can also find several central and state government schemes that provide child insurance plans free of cost. A drawback of government schemes is that they are only for a girl child and that too for the girls from the underprivileged economical background.
8 Important Features of a Child Insurance Plan
There are several features that distinguish a child insurance plan from an ordinary insurance plan. The main reason for these extra features and allowances is that the government too promotes you have a child insurance plan -no matter from which company- for your child. And when both the insured and insurer get benefits from the government, the facilities are bound to increase. Given below are eight such distinguishable features which make child insurance plans the best investment.
Life coverage is an inbuilt/default feature in every life insurance policy. In the case of a child insurance plan, you can go for a high coverage by paying higher premium. You can also go for a child insurance plan that have health benefits as well.
An attractive feature of a child insurance plan is that it has the lowest premium amount despite the high insured money. The low premium amount is also due to the fact that they are child plans. There are plenty of subsidies for child plans, and it substantially reduces the premium amount.
Guaranteed Return on Investment
The problem with investing in high-return investments is that they do not even give an assurance on the capital, let alone give returns. As most of the returns generate due to the market’s volatility, there is no guarantee for capital investment. Insurance plans, especially child insurance plans, have guaranteed return on investment.
Tax Savings on Premiums and Returns
Another great feature of child insurance plans is that the government gives the policy payer, usually the parent, tax-exemptions for investing in child insurance. You can claim up to INR 1,50,000 deductions in your taxable income per annum as per this law. What’s more, even the returns that you get at the maturity date of child insurance plans have tax exemption, which means tax-free premiums and tax-free returns from the same insurance policy. However, please note that tax deductions are in accordance to current tax laws that are subject to change from time to time.
Several people use child insurance policies as modes of investment for their child’s future. They invest in the scheme while their child is still young so that they can accumulate a huge sum of money. Then they use this money on important occasions in the child’s life. And even if the financial background of the family is good and they don’t use it for anything, the child can keep this money as their savings.
Usually, a child will require the money when they are around 18 years old. And several financial advisors recommend investing as early as possible in child investment schemes for the benefits of high returns and lower premiums. If you too follow this advice, you will certainly have an investment duration that is longer than a decade. Long-term investments have higher rates of returns because of capital and interest compounding.
Partial withdrawal is a great benefit of a child insurance plan. With a partial withdrawal, the investor can withdraw a part of the money invested to date in case of any health or economic emergency. Partial withdrawals make child insurance plans apt as a long-term investment that also considers short-term and unexpected events of a family.
Like other insurance schemes, there are also several add-ons available with a child insurance plan. These add-ons include adding a second child in the same plan, policy term extension, withdrawal modes, critical illness cover, etc. Most add-ons have extra charges and can increase the premium amount, particularly if you add them between the policy.
Less Handling Charges
As child insurance plans are investments for children, insurance providers’ charges for handling, maintenance, claim approval, etc., are nominal or nil. It allows you to get the entire sum of the maturity amount without any or with very low deductions.
Now that you know all the great features of child insurance plans, you must definitely have one for your child. You can ensure the financial safety of your child through these plans. One of the greatest worries of parents is thinking about what will happen to their children in case of their untimely demise. By investing in your child from early days, you can be free from any worries regarding their future and enjoy family life with children more.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
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.