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How to choose the Best Child Education Plan?

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How to choose the Best Child Education Plan?
November 16, 2023

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Personality development is not just important for adults, it’s as critical for children, maybe more so. A sense of character at a young age harbours a similar streak in adulthood. Conversely undesirable personality traits in childhood are extremely difficult to reverse after the formative period.

How to choose the best child education plan?

There are a large number of child insurance plans in the market, so parents do not have it easy when it comes to selecting the best child education plan.

Selecting an ideal child education plan is critical for the long term development of the child’s future. Given the competition for degrees and the spiraling cost of education, there is pressure on both parents and children when it comes to higher education - pressure on children to perform and on parents to provide adequate finances for the degree.

  1. Invest in plans that offer premium waiver benefit

    Most child plans offer premium waiver benefit – either as an option or as an essential feature of the primary plan. The premium waiver is particularly important as in case of the death of the parent, the insurer waives off future premiums while continuing to fund the life insurance policy  till maturity. This makes sure that the maturity benefit that was set for a certain age remains intact as planned, in addition to the death benefit paid.

  2. If you have the risk appetite then go for equity-linked plans

    If you have appetite for equities and a considerable investment time frame (at least ten years), you can consider opting for unit-linked child plans. It is established that over longer time frames equities give the best returns and parents must make the most of the opportunity. Ideally, the child plan must offer a balanced mix of growth and debt funds along with risk cover. Also, choose a child insurance plan that has the system transfer option to make sure your gains in the investment are protected.

  3. If you do not have the risk appetite, go for simple endowment plans 

    If you have a lower appetite for market uncertainties and have an investment time frame of less than ten years, then equity-linked plans are not for you. Go for endowment plans instead. Although you won’t accumulate as much vis-a-visa child ULIP plan, but you will be adequately covered against market uncertainties.

Benefits of Child Plans

We’re sure that your topmost priority is securing your child’s future. Apart from helping you do this, child plans offer a wide variety of other benefits such as:

  • Securing Their Dreams

    These policies allow you to save up a lump sum amount that your child can then use to follow their heart’s desire. If your child would like to go abroad for their education or start their own business, this money could help them do precisely that. Every good child plan will help secure your child’s dream financially.

  • Financial Stability

    One of the primary benefits of child insurance plan is that it provides your child with financial stability in case something were to happen to you. While nothing can replace you or fully make up for your loss, your child can still continue their education or pursue their dreams, supported by the payout from the plan.

  • Maturity Benefit

    If you purchase a plan when your child is very young, it’s likely they will receive the maturity benefit just when they’re ready to head to college. Given the rise in education costs, this has become all the more important today. By investing in a child plan, you can help secure your child’s college expenses.

  • Additional Riders

    Many child plans come with additional benefits, such as a waiver of premium or personal accident insurance riders. These add-ons provide additional cover, over and above what is already offered in a regular policy. These riders provide peace of mind and additional support and security for your little one.

  • Partial Withdrawals

    Certain plans allow you to make partial withdrawals against the corpus you’ve built up over the years. This allows you to deal with financial emergencies. You can use the withdrawal from the plan to help pay for any special course that your child wants to take up.

  • Income Tax Benefits

    The premium that you pay towards the upkeep of a child plan is exempt from taxes under Section 80C of the Income Tax Act 1961. You can claim deductions up to INR 1,50,000 per year against the premium amount. Additionally, the payout from this plan is also tax-free under Section 10(10D) of the Income Tax Act.

How Child Plans Work

Child plans were created for the sole purpose of helping your child fulfil all their dreams. To start the process, you must decide whether you’d like to purchase a Unit-Linked Insurance Plan (ULIP) or an Endowment Plan. A ULIP will provide you with the opportunity to choose where you’d like your money to be invested. On the other hand, if you opt for an endowment plan, the insurance provider will simply invest the amount in debt instruments.

While purchasing the policy, you also need to clearly state whether you’d like a lump sum payment or regular, monthly or annual payments. Once you sort out the details and pay the premium, the child plan will come into effect.

Now, let’s assume that you are the policyholder and you meet with a fatal accident. All future premiums will be waived off and the policy provider will pay your child a part of the maturity amount every year until the plan matures. On maturity, your child will receive the lump sum amount as promised.

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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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