Child Education Plans in India: A Technical Guide To Secure Your Child's Academic Future
Read this article to know more about child education plans, their investment and insurance benefits, and how they help parents build a secure financial corpus for rising education costs in India.
Child education plans are structured financial products designed to help parents make systematic investments in order to accumulate a dedicated corpus for the future educational requirements of their child.
In essence, parents make investments in the form of either regular premium payments or a one-time lump sum contribution. The investments will mature at the end of the policy tenure, and the accumulated corpus will be available for utilization towards the cost of education.
Child education plans are basically child insurance plans since these financial products incorporate two main features, namely:
The purpose of the insurance component of the policy is to provide adequate coverage for the child in the event of the untimely death of his/her parents. If the insurer pays the death benefit to the child, then his/her education will remain unaffected due to financial issues.Types Of Child Education Plans
Traditional Child Savings Plan
These plans provide the following features:Unit Linked Insurance Plan
These products combine both insurance and investment components, in which investments are made in the capital markets.
Advantages:
Parents often use an ULIP calculator to estimate future maturity values, premium affordability, and the projected education corpus based on different market return assumptions.Why Should You Have a Child Education Plan?
Due to rising education costs, parents need to be prepared for the future and make suitable investments in advance. Here are some reasons for the importance of a child's education plan:Rising Costs of Education in India
The cost of education has been increasing by leaps and bounds each passing year in India. As compared to previous decades, now both school tuition and college fees are much higher in today's times. Not only domestic institutions but also foreign universities have increased their fee structures.
Some facts regarding rising education costs in India:
Thus, child education plans are needed by parents to accumulate an adequate corpus for education costs, which will take into consideration the effects of education inflation. For many families, selecting the best policy for child education funding becomes a critical part of long-term financial planning.Disciplined Investing Towards Wealth Creation
One of the main benefits of child education plans is disciplined investing. By paying premiums regularly, parents are able to systematically save money over a period of time and avoid making erratic investments.
Here are some advantages of disciplined investment:Power of Compounding
Suppose if the parent invests:
In this scenario, due to the power of compounding, the corpus will increase manyfold.
If the parent starts investing later, then he/she will need to invest significantly larger monthly amounts in order to achieve the same corpus.
Starting early is better because:Protection of the Child Against Financial Risks
Child education plans also act as insurance products. Due to their insurance component, child education plans ensure that:
In child insurance policies, if the insured dies, then:Flexibility and Customization of the Product
Modern child education plans give flexibility in terms of premium payment and maturity payout options and fund choices.Premium payment flexibility:
Payout flexibility:
Flexibility in fund allocation:
Flexible allocation depending on risk profile and tenure of investment.Avoid Using Education Loans For Higher Education
High-interest education loans can prove to be heavy financial burdens for students in the future. By making investments in child education policies from early on, parents can accumulate adequate money for their education so that there is no dependence on loans.Features of Child Education Plans
Goals-Based Financial Planning
Such financial products are tailored specifically for achieving future financial objectives like higher education.
Long-Term Tenure Of The Policy
These plans generally operate within a tenure of 10-20 years, in which sufficient time for investments is provided.
Life Insurance Cover
Provides adequate cover against risks that may affect the corpus.
Accumulation of Money
Investments will earn inflation-beating returns over long periods of time.
Premium Waiver
Future premiums are waived in the event of the demise of the parent while maintaining benefits for the child.
Withdrawal Feature
A certain number of child plans allow partial withdrawal of the corpus to be used for education purposes.How To Choose A Child's Education Plan
The selection process for a suitable child education plan involves the following steps:
Estimate Future Education Cost
Consider:
Start Early
Early investments result in smaller monthly payments.
Choose Adequate Life Insurance Cover
The life insurance part should adequately provide for the future premiums required.
Match Risk Appetite With The Plan
Evaluate Charges And Investment Returns
Investors must compare:Conclusion
In today's era of rising education costs and financial risks, financial planning for your child's education is necessary to safeguard their future.
By taking into account the following features, child education plans provide a total financial solution for education:
Thus, whether you invest in ULIPs, SIPs, SSY, PPF, or debt funds, it is important that: