Child Education insurance

Child Education insurance.

With cost of education rising exponentially, saving for children’s education is the top most priority for most parents.

As per estimates, the cost of education has increased by 150% in past decade. About 70% parents spend as much as 30-40% of their salary on their children’s education. Hence, there are many parents who are seeking products that will help them save enough to fund their children’s future needs.

While mutual funds are recommended as ideal long term instruments for these needs, there haven’t been many schemes targeting this segment.

On the other hand, insurance companies have large number of products for this category, generally unit linked insurance plans (ULIPs).

Recently, Mutual funds are becoming more aggressive with child’s plans. However, most of these schemes are debt oriented. Taxation will also be like debt funds, in which returns will be added to your income if you exit before three years and taxed as per the income-tax bracket. After three years, taxation will be 20% with inflation indexation benefits.

On the other hand, if you buy a child insurance plan, the product will be an insurance-cum-investment plan. So, there is an inbuilt insurance component because it assumes that if parent dies, the child should have enough money to complete the education. So part of the premium goes towards paying for life cover. The remaining part is invested in debt and equities. Also, the costs are higher because there is premium allocation and other charges. These plans get benefits under section 80C of the Income Tax Act. On withdrawal, the tax benefit will depend on the premium-to-sum assured ratio.

Financial planners recommend that ideally one should prepare   a portfolio with a proper mix of debt and equities for children’s education. However, if one is enable to do so, a child mutual fund coupled with a high value term insurance plan should be best option for child’s future.

The Child Education Policy is a life Insurance product specifically designed as a savings tool to provide an amount of money when child reaches the age for entry into college (18 years and above). The funds can be used to pay for your child's higher educational expenditure. Under this policy, the child is the life secured, while the parent/legal guardian is the policy owner. If one can opt for a pay or benefit rider, the education policy also provides promise that, in the event of the policy owner's untimely demise, the child will have access to the money to help finance his or her studies. Child Education Plan is a single way to save for child's future. To fulfill child's dream & aspirations, commence by making small investments in a Child Education Plan for a short tenure and receive regular payouts for the rest of the tenure in child’s future for a fixed period of time.