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Child Endowment Policy

In India, where children are a blessing, investing in a child's future is a prime concern for any parent. As children grow, their financial and educational requirements also evolve. Thus, choosing the right child endowment plan is necessary for meeting future expenses and ensuring the presence of adequate funds for a child to utilise during a crisis.

A child endowment policy is a life insurance policy that offers continuous support to parents, allowing them to build a strong financial future for their child. This policy covers all necessary expenses that might take place in the future, including the child's education, wedding, and other costs. ...Read More

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Child Endowment Policy

Child Endowment Policy

Child Endowment Policy
November 28, 2024

 

Features of Child Endowment Policy

A child endowment policy is designed specifically to provide financial safety and security to a child. The funds saved by such policies contribute to their higher education and career. The parents are required to pay premiums to accumulate a corpus large enough to meet their child’s major expenses when they turn 18 or 21 years old. 

Alongside savings, children’s endowment plans also provide comprehensive life coverage for children, covering their expenses and financial goals after the parent's demise. Here are some more distinguishing features of a child endowment policy:

  • It Helps You Ensure Your Child’s Future is Secure

  • Through a child endowment plan, you can provide financial assistance for your child’s future. It is a premium and affordable child insurance policy that parents can avail to secure a better future for their child.

    Even in your sudden demise, your child can get substantial funds to cover expenses relating to weddings, education, marriage, and so on. Alongside this, child endowment plans also provide your child a lump sum amount upon attaining majority and regular bonuses, as per the policy’s terms.

  • It Encourages You to Start Saving Early

  • An endowment policy for a child ensures disciplined savings from the time your child is young. Starting early helps in achieving long-term goals as your invested money has enough time to benefit from compounding. The main concern in this regard is not only saving your money but also growing your investment to beat inflation.

    Systematically build your corpus by opting for the right child endowment plan. After your child reaches the age of 18, your plan will start providing regular payouts to the child at preset intervals or pay a fixed lump sum, fulfilling their financial needs.

  •  It Allows You to Get Tax Benefits

  • By opting for a child insurance policy, you can avail several benefits under the Income Tax Act, 19611. Here is a detailed overview of the tax benefits offered by an endowment plan:

    1. Section 10(10D): All the payments from death benefits, maturity benefits and bonuses from a child endowment policy are exempted from taxes under Section 10(10D)1 subject to conditions as may be prescribed.

    2. Section 80C: Under Section 80C1, you can avail tax deductions for the premiums paid towards a children’s endowment policy. Subject to conditions prescribed, deductions of up to Rs. 1.5 Lakhs from your taxable income can be claimed every year you pay premiums. Deductions can be claimed under 80C, 80CCC and 80CCD(1) of Income Tax Act, 19611 but the total deductions cannot exceed Rs 1.5 lakh a year for all the investments put together as per provision of Section 80CCE1.

    3. Section 80D: Premiums paid towards health insurance of your family, are eligible for tax deductions under Section 80D of the Income Tax Act,19611. The deduction under this section is applicable for insurance premiums paid on the health of self, spouse, and children. The maximum deduction available for the family shall be ₹25,000.

    4. Section 80DD: If you are resident individual and your child suffers from any disability,  you are eligible for tax deductions against the expenses on medical treatment or deposit of any amount for maintenance of such  disabled child. For limited disabilities, the maximum deduction limit is Rs. 75,000, while for severe disabilities, the limit is Rs. 1.25 lakh.

When Is the Right Time to Invest in a Child Endowment Plan?

Choosing the right time to invest in a child endowment plan is important for maximising its benefits and providing financial assistance to a child’s future. Starting at an early age allows parents to arrange funds for paying regular premiums and benefit from long-term growth. 

By conducting a proper evaluation of the financial goals and desired needs of your family, you can determine the ideal time to initiate a savings plan. 

Here are some underlying factors to consider for determining the right time for investing in the best child plan:

  • Protecting Your Child’s Future

  • A child endowment plan imparts security to your child's future and offers them a safety net for meeting any uncertainties. By investing at an early age, parents can provide security to their child's future and ensure sufficient funds to meet any financial emergency during challenging times. By building up a strong financial foundation, a child can be financially independent and gain confidence in pursuing their dreams.

  • Helping With the Child’s Education

  • A child endowment plan provides a valuable resource for meeting your child's expenses, covering education costs from schools to private tuition. The educational expenses of a child can be huge, and having adequate funds is necessary to ensure you can meet their future educational expenses without compromising access to quality education.

    By choosing an endowment plan, parents can ensure that they build a strong financial foundation for fostering the growth and prosperity of their children. Additionally, the plan provides peace of mind and financial preparedness.

  • Financial Support for Your Child’s Marriage

  • Weddings involve high costs of venues, celebrations, and other arrangements. Thus, to meet children’s future wedding expenses, parents must set aside funds. Investing in the right child endowment plan can help in handling the financial pressure of expenses with ease. Moreover, parents can arrange for a wedding without worrying about finances.

  • Giving Your Child a Fund to Support Their Startup Ideas

  • Choosing the right child endowment plan helps a child fulfil entrepreneurial dreams without worrying about arranging funds. After reaching adulthood, your child may want to start a new business venture. Unfortunately, starting a business or a profession requires substantial funds and the ability to bear high risks.

    Thus, keeping funds ready for your children to provide financial backup would then be great for them. Such financial support would serve as a strong foundation for fulfilling long-term desired objectives.

  • How to Save on Taxes

  • By investing in a child endowment plan, parents can avail tax benefits. The premiums paid towards these plans are often tax deductible, allowing parents to save money without worrying about paying more taxes on returns.

    Savings on taxes is thus one of the most distinguishable features of child endowment plans as it results in more savings and investment opportunities. Opting for the right plan provides dual benefits to parents, i.e., it builds a strong financial foundation for the child and maximises tax savings.

  • Helping with the Child’s Future Expenses

  • Choosing the right endowment plan enables parents to help their child meet future expenses relating to purchasing a home or car. As children continue growing, their expenses increase. In addition, inflation reduces the purchasing power of the money saved.

    Thus, a substantial corpus enables your children to meet their future expenses without creating any financial stress. This kind of financial support is also an ideal way of helping them achieve their desired goals with confidence.

What Mistakes Should You Avoid When Choosing a Child Endowment Plan?

Selecting the right child endowment plan is important. However, certain common myths might affect your decision-making abilities as you plan for your child's future. Thus, parents should carefully assess their financial goals before choosing such a plan. 

Here are the common myths you should avoid while choosing a child endowment plan:

  • Believing that a Child Endowment Insurance Policy is Unlucky

  • As the name suggests, many people believe that a child endowment plan provides life coverage to the child and a payout for the parents. Hence, it is unlucky to opt for one. The truth behind this is that child life insurance plans work the other way around.

    They offer life coverage to parents; in other words, they provide payouts to children in case of a parent's death. Because of this feature, even with the sudden demise of parents, their children can continue fulfilling their dreams.

  • Believing that a Child Endowment Policy Only Pays for Education Expenses

  • According to some parents, a child endowment plan is designed specifically for meeting educational expenses. Moreover, some think that insurance providers only provide payouts if the money is used for educational expenses. This is a myth.

    A child's plan not only covers educational expenses but also helps with wealth creation and getting inflation-beating returns. The funds accumulated over time can be utilised for any future expenses of the child.

  • Concern About a Long Lock-in Period in a Child Endowment Plan

  • A life insurance policy for a child usually has a flexible investment period. Some plans, however, have a fixed tenure, depending on the plan you choose. The policy term for endowment plans usually varies between 5 to 25 years. However, your child doesn’t have to wait for that long to start receiving its benefits.

    With many endowment plans, parents can withdraw partially and get loan facilities during times of need. Additionally, the interest paid on the loan amount will be tax exempted applicable under Section 80E of the Income Tax Act, 19611.

  • Believing that a Child Endowment Plan Stops if a Parent Dies During the Policy Term

  • This is a myth because a child endowment plan is designed specifically to meet the financial needs of parents and children. The majority of these plans have an inbuilt waiver option.

    This option thereby ensures the insurance provider waives off the premium amount payable in the future in case of a parent's sudden death event. Under this circumstance, a child not only receives all death benefits but also the maturity benefits during the purchase of the endowment plan.

Summary

To conclude, opting for a child endowment policy is the first and most significant step towards shaping your child's future and fulfilling long-term financial goals. These plans are not limited to providing benefits to a child but also cover other expenses a child might face in the future. When it comes to the question of financial stability and security for your child in the future, these plans are perfect options.

FAQs on Child Endowment Policy

1. Are there any options for partial withdrawals in a child endowment policy?

Yes, there are multiple options for partial withdrawals in a child endowment policy, specifically if the policyholder decides to withdraw after a particular period. 

2. What happens if I miss a premium payment?

If you miss a premium payment for the child endowment plan, the policy will lapse automatically. 

3. What should I consider when purchasing a child endowment policy?

There are three main factors to consider while purchasing a child endowment policy. These factors include providing financial stability and security to your child, surpassing investment goals, and accumulating wealth to reach long-term financial goals with ease. 

4. Can I switch or change my child's endowment policy during the term?

Yes, you can switch or change your child's endowment policy during the term as per your requirements. 

5. Can I assign a beneficiary to my child's endowment policy?

Yes, you can assign a beneficiary to your child's endowment policy. However, make sure to review and update your beneficiary as per changes in different stages of life, including marriage, divorce, or sudden demise of the beneficiary.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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1. Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time.  Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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