A Child Education Plan is a type of child investment plan, providing corpus funds to be accumulated to meet the future milestones of children, along with the growth of wealth & insurance. It can be said that this child investment plan comes with a main objective to fulfil the educational-related goals. These plans include educational expenses, such as book costs, admission charges, & tuition fees, if any. This plan ensures access to higher education without any intervention or compromises due to financial constraints.
The accumulated funds can be used to bear the child’s education & the insurance component, including life coverage.
Reasons to Choose a Child Education Plan
Provided are the reasons to choose a child education plan as a Child Investment Plan:
- Immediate Assistance for Financial Emergencies
The partial withdrawal facility entitles the policyholder to withdraw funds if any emergency situation arises. In case of a child education plan, there is a lock-in period of 5 years, after which it is allowed to withdraw funds if any need arises.
- Tackling Rising Education Expenses
The returns from a child education plan take the inflation factor into account to deal with the rising educational costs. These educational costs include book costs, travel expenses, tuition fees, & any other education-related expenses.
- Offering Collateral for Securing Education Loans
In case you want to apply for an educational loan, a child education plan can be held as collateral. Additionally, it allows you to avail a high-value loan along with lower interest rates.
- Protecting Your Child’s Future
This plan ensures financial protection for your child in case of your absence, ensuring that their education continues, whatever the situation may be. This plan includes receipt of a lump sum payment at the time of maturity to meet the expenditures of higher studies, either in India or abroad, hence offering mental peace to parents.
- Returns on Investment
These plans offer higher returns, making them a growth-oriented plan. This means that these plans offer substantial returns if left for a longer tenure. It helps in building a huge corpus for higher educational purposes & beating inflation. One can choose between debt, equity, or both, depending upon the risk tolerance level.
How to Choose an Appropriate Child Educational Plan?
Provided are some checkpoints that can help you choose an appropriate child educational plan:
- Multiple benefits
Always opt for a plan which offers multiple benefits, such as a premium waiver, growth of savings, life coverage, etc., if something uncertain happens.
- Partial Withdrawal Options
Opt for a plan which allows you to withdraw the funds partially to meet an uncertain financial crunch.
- Reputation of Insurance Provider
Choose that insurance company that is trustworthy, reputable, & offers financial protection in case of emergencies.
- Flexibility
Opt for a plan which is flexible in terms of making payments towards the premium at your convenience & according to the relevant situation.
- Investment Options
The plan chosen should be such that it offers different investment options, such as debt, equity, or balanced funds, best aligning with the financial objectives & risk tolerance level.
- Policy Tenure
The policy tenure should be such that it best aligns with your child’s age & their future milestones, such as higher education or marriage.
Tax Advantages of a Child Education Plan
Provided are the tax advantages of a child’s educational plan:
- Section 80C: The premium paid towards the child education plan is eligible for a tax deduction of up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961.
- Section 10(10D): The maturity proceeds received under this plan are exempt from tax under section 10(10D) of the Income Tax Act, 1961.
Features of a Child’s Educational Plan
While looking for the Best Child Education Plan, one should look for the mentioned features in the plan:
- Dual Benefits
A part of the premium is allocated towards insurance, which ensures the protection of the child’s education fund in case of the sudden demise of the policyholder. Additionally, some insurance companies even waive off remaining premiums. The remaining premium is to be allocated by investing it in equity, debt, or both, creating a corpus fund for the child’s future education.
- Life Cover:
In the unfortunate event of the policyholder’s sudden demise at any time during the policy tenure, a sum assured will be provided to their child. This main benefit leaves no room for compromise in terms of educational disruptions.
- Receipt of Lump-sum Benefit:
If the policyholder dies during the policy tenure, their nominees will receive a lump sum benefit from the insurance company. This ensures continuity of their education without any financial compromises.
- Waiver of Premium
Under this plan, if the policyholder dies, the remaining premium amount would be waived off & taken care of by the insurance company. This accumulated amount would be received at the time of maturity as was planned earlier.
- Additional Riders:
This plan allows for adding some critical riders to enhance the coverage of the present plan at an added cost. These additional riders help to enhance the security & financial support if the need arises.
- Taxation benefits:
These plans offer a deduction of tax u/s 80C & exemption of maturity proceeds u/s 10(10D) of the Income Tax Act of India, 1961.
- Partial Withdrawals:
Once a 5-year lock-in period is completed, the policyholder is entitled to withdraw their funds to meet education-related expenses, such as tuition fees, admission charges, etc.
Conclusion
Child educational plans are the smartest way parents can save for their children’s brighter future. In this uncertain world, it is advised to start saving early & receive funds at each & every milestone of life, such as school, college, or any specialised course, whatever the challenges may be. With an effective & smart mindset, it becomes possible to provide the best education to your children that they deserve. The right plan might not suit every policyholder, thus it is advised to conduct proper research, consult financial advisors, & then choose an appropriate plan that best suits your financial objectives & risk tolerance level.