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How to use an online savings plan to secure your child's education fund?

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How To Use an Online Savings Plan To Secure Your Child's Education Fund
January 05, 2024

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

The way the Indian and global economy is evolving, it’s increasingly crucial to have a well-strategized academic path to be a relevant choice for employers. And to ensure that your child has one in place, it’s important to have a corpus ready to fund his/her educational needs. An online savings plan can be sensible choice as it provides you with a hassle-free scope of investment to secure your child’s education fund. But it’s essential to know how to use the child insurance plan in the best way to maximize its benefits. 

How can an online savings plan help your child’s education plan?

A child insurance plan is designed to take care of and fund your child’s educational needs. A combination of an insurance and investment plan, these savings plans pay a lump sum payout upon maturity. However, if you die within the policy term, the sum assured is paid to the child, so that he/she can carry on along the desired academic path, without any financial burden. 

Types of Online Savings Plans for Your Child’s Education

Different types of online savings schemes are available in the market, which can be a good bet to build a corpus for your child’s education. They are:

Systematic Investment Plans (SIP):

These plans allow you to save in a monthly or quarterly schedule and invest in mutual funds. Investing a small amount every month doesn’t pinch your pocket and helps grow your money over time. Choose a plan that aligns with your child’s age and educational needs. 

ULIP for Child’s Education

A Unit Linked Insurance Plan combines the benefits of life insurance and an investment opportunity, which can help you achieve financial security for your child’s future. Part of the premium in ULIP’s forms the life cover, which is paid to your child in the event of an unforeseen death benefit. The rest is invested in a portfolio of equities and debt securities to fetch optimum returns. 

Debt funds:

Debt funds offer a guaranteed return by investing your money in fixed-income instruments like bonds. This protects and retains your capital despite market fluctuations to create the desired corpus. 

Recurring deposits (RD):

This is a short-term savings scheme that allows you to make monthly deposits for a pre-defined period and earn compound interest. It’s a good and secure way to save and build a corpus for your child’s education. 

Public Provident Fund (PPF):

It is a long-term savings scheme that can be opened for anyone above 18 years of age and has a maturity period of 15 years. Here the money grows at a high compound interest rate of 7% and the withdrawal is allowed after a lock-in period of 5 years. 

 Tips to choose the best plan

  • While there are various avenues available to build a corpus for your child’s education, it’s crucial to trace the best online savings scheme that fits the best to your needs and target. Here’s how to do it. 
  • It’s important to pick an online savings scheme or child insurance plan with a high maturity value. The returns will suffice to beat the inflation. 
  • Choose the policy according to your target. Whether you look to fund your child’s college education costs or that of studies abroad, should be taken into account while you take your pick. 
  • Decide on a policy term and premium payable as per the goal as well as your convenience and affordability.
  • Usually, savings policies come with added features like loyalty bonuses or wealth boosters that help in cutting down the cost of the policy. Look for these extra benefits.
  • Make sure the child insurance plan you choose has the premium waiver option. This means, that if you die an untimely death, no more premiums have to be paid for the policy. Yet the maturity benefit will be paid when it is due. 
  • Add the riders2 that best fit your requirements. These will save your child from unexpected financial burdens. 
  • Remember to select a child insurance policy with a partial withdrawal facility. This will help in coping with sudden financial crunches, if any.

Child education plan benefits you

Not just your child, investing in a child education plan can be beneficial for you too. You can enjoy tax benefits from these online savings instruments. Premiums paid up to Rs 1.5 lakh per annum are tax-free under section 80C of the Income Tax Act, 19611 while tax exemptions for the death and maturity benefits are available under section 10(10D)1. Partial withdrawals too are tax-free. 

Footnote

Choosing online savings options for your child's insurance plan has its share of benefits. All you need is to activate automatic deductions and sit back and relax. Disciplined savings, tax benefits and a corpus ready for your child’s future. Doesn’t that sound good?

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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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Author Profile Written By:
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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Disclaimer

  1. Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.
  2. For all details on Riders, kindly refer to the Rider Brochures available on our website.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year   

For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale. Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. 

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