Updated on: 25 May 2023
It is crucial to start planning early to ensure that your child has the necessary funds to pursue their educational dreams. Fortunately, there are various child insurance planning options available that can help you save and grow your money over time to meet their future expenses.
Key takeaways
- Sukanya Samriddhi Yojana is a government-sponsored savings plan to put money towards a daughter’s education.
- Indians have the most confidence in gold investments regardless of all available investment possibilities.
- Due to fund alternatives that provide steady returns, low levels of risk, or both, ULIP plans have become more popular.
- Investing in real estate can also be a viable option for parents who want to save for their child’s education.
With the rising expense of education, it is more crucial than ever to begin saving as soon as possible to reduce your financial load in the future. Student finance for higher education will undoubtedly be costly, and thus it is very important to start investing in the right child insurance plan at the right time.
What is a Child Insurance Plan?
The primary objective of a child insurance plan is to create a financial corpus that can be utilized to meet various milestones in a child’s life, such as education expenses, higher education abroad, marriage, or other significant life events and provide financial protection in case of any unfortunate demise of parents.
Child insurance plans come in different forms, but the basic concept is the same. They are designed to provide a lump sum payment to the child in the event of the parent’s death. This payment can be used to pay for the child’s education, healthcare, or any other expenses that may arise.
How to do Child Insurance Planning?
As parents, we all want to protect our children’s future and ensure they have access to the best opportunities in life. One way to do this is through child insurance planning. It is a process of buying insurance policies that offer financial protection for your child’s future in the event of the untimely death of the parents.
Determine the Amount of Insurance Coverage
Before buying a child insurance policy, it is essential to determine the amount of insurance coverage you need. You should consider the child’s future expenses, including education, marriage, and other financial needs. It is important to factor in inflation and the rising cost of education and other expenses while deciding on insurance coverage.
Choose the Right Insurance Provider
Choosing the right insurance provider is crucial while doing child insurance planning. You should choose a reliable insurance company with a good track record and reputation in the market. You can research the company’s history, financial stability, customer service, and claim settlement ratio before choosing the insurance provider.
Consider the Policy Tenure
Policy tenure is an essential factor to consider while doing child insurance planning. It should align with your child’s future financial goals. For instance, if your child plans to pursue higher education after 18 years, you should opt for a policy with a tenure of 20-25 years.
Compare Different Insurance Policies
It is essential to compare different insurance policies before making a final decision. You should compare the features, benefits, and premiums of different policies to choose the one that best fits your needs. You can use online insurance comparison tools to compare policies from different insurance companies.
Review the Policy Periodically
Once you buy a child insurance policy, it is important to review it periodically to ensure it aligns with your child’s future financial goals. You should review the policy every few years and make changes to the insurance coverage and tenure if required.
How to Choose the Best Child Insurance Plan?
One way to ensure your children’s financial security is by investing in a child insurance plan. However, with so many options available in the market, it can be overwhelming to choose the best one for your child. Here are some key factors to consider when selecting the best child insurance plan:
Type of Plan
There are two types of child insurance plans available – traditional and unit-linked insurance plans (ULIP). Traditional plans provide a guaranteed return on investment, while ULIPs invest in equity and debt funds, providing potentially higher returns. Consider your investment goals and risk appetite before choosing between the two.
Policy Term
The policy term should align with your child’s future goals. For instance, if you want to secure your education, opt for a policy term that coincides with your college years. If you want to provide financial security for their entire life, a policy term that extends till their retirement may be more suitable.
Premium
Premium payments should be affordable and sustainable over the policy term. You can use online premium calculators to estimate the premium and choose a plan that fits your budget.
Riders
Riders are additional benefits that you can add to the base policy to enhance its coverage. Examples include critical illness cover, accidental death benefit, and waiver of premium. Choose riders that align with your child’s needs and future goals.
Surrender Value
The surrender value is the amount that the policyholder can receive if they choose to discontinue the policy before its maturity. It is advisable to choose a plan with a high surrender value to safeguard your investment in case of financial emergencies.
Flexibility
Choose a plan that offers flexibility in terms of premium payments, policy terms, and benefits. This will allow you to modify the plan as per your changing financial needs and goals.
Top 7 Investment Options for Your Child’s Education
One of the best presents you can give your child is to invest in their education. With the cost of higher education increasing every year, it is essential to start investing early to ensure your child has the financial resources they need to succeed.
Mutual Funds Investments
Pooling money professionally, managed by a Fund Manager, is called a mutual fund. There are three broad categories for a mutual fund: equity, debt, and hybrid. For instance, assume you have a one-year-old child, and your investment horizon is likely to fall between 10-15 years, depending on your investment aim. As a result, you should consider investing in equity-oriented schemes to achieve your financial goal of supporting your child’s education.
Since this is a long-term approach, the returns will be good enough to help you build that corpus. You might want to keep your money in an equity fund for a long period. However, after a few years of making such an investment, you can consider moving your investments to liquid funds to prevent significant volatility and assure liquidity based on your future needs.
Gold Exchange Traded Fund (GTF)
Indians have the most confidence in gold investments regardless of all available investment possibilities. Physical gold carries a higher risk of purity and comes with additional costs, such as producing jewelry, among other things. Furthermore, dealing with actual gold entails a great deal of effort and price in the form of locker purchases, etc. Gold ETFs, like stocks, are traded on the National Stock Exchange and may be bought and sold at market rates. Such funds are passive assets whose value is tied to the gold price in international markets because they exclusively invest in gold bullion.
Unit Linked Insurance Plan (ULIP)
Due to fund alternatives that provide steady returns, low levels of risk, or both, ULIP have become more popular. As a result, many insurance companies, banks, and financial organizations offer these plans in India, allowing policy purchasers a variety of alternatives to select from. Your money will generate high returns throughout the vesting period, assuring good ROI on the investments and supporting your little one’s educational costs in the future.
Term Deposits
Like fixed or recurring deposits, term deposits have traditionally been favored by a wide section of Indian investors due to the low risk they entail. Although they give low yields (about 6.5 percent to 7.5 percent for big banks), they are a low-risk investment choice. These deposits are made for a specific time and have limited liquidity. Furthermore, banks impose fines on investors who make early withdrawals. The values on such investments over ₹10,000 per year are taxable.
Sukanya Samriddhi Yojana (SSY) - A Government policy
Several government-sponsored saving plans also assist investors in accumulating adequate funds for the higher education of students. For example, Sukanya Samriddhi Yojana is a government-sponsored savings plan that works well for conservative investors looking to put money towards their daughter’s education. SSY is a low-risk investment that can save you up to ₹1.5 lakhs in taxes under Section 80C of the Income Tax Act. However, if you have a girl kid, you are only entitled to invest in the plan. Furthermore, under this arrangement, a family can only open a maximum of two accounts.
Real Estate
Investing in real estate can also be a viable option for parents who want to save for their child’s education. Purchasing a rental property can provide rental income that can be used to pay for education expenses. Parents can also invest in Real Estate Investment Trusts (REITs), which are companies that own and manage real estate assets and offer dividends to investors.
Final Words
While inflation might go down near zero, a key expenditure for the ordinary Indian household is rapidly increasing. One of the largest monetary outflows that households must budget for is their children’s education, and thus, understanding higher education finance is necessary. The key to financial support for higher education is investments, so start investing today to secure your child’s tomorrow.
FAQs
1
What is the best way to start saving for my child’s college education?
There are various investment options available to save for your child’s education. It is essential to start early and set a realistic savings goal to meet your child’s educational needs.
2
What is a custodial account?
A custodial account is a type of account that an adult opens for a minor. The account is held in the child’s name but managed by an adult until the child reaches the age of majority. Custodial accounts can be used for college savings, but the funds are not specifically earmarked for education expenses.
3
How much should I be saving for my child’s college education?
The amount you should save depends on the cost of the college or university your child plans to attend. It is important to research the estimated cost of tuition, room and board, books, and other expenses. Financial experts recommend saving at least 50% of the projected cost of attendance to ensure that you can cover your child’s education expenses without relying on loans or other sources of funding.
