Consider the day your child was born, and you held them for the first time in your arms. You realised then that taking care of this tiny, joy-filled child in your arms was your responsibility. You will be raising, protecting, and developing this little being into a respectable adult. And that responsibility is certainly not light.
Your primary responsibility as a parent is safeguarding your child’s future and purchasing a child insurance policy is an excellent place to start. A child insurance plan offers you the advantages of investments and gives your child the safety net you would desire for them.
These life insurance products can assist you in planning a secure future for your child. In this article, we will explore them in detail and find out their benefits.
What is a Child Plan?
A child plan, often known as a child insurance plan, is a type of Guaranteed Returns Plan (endowment or money-back plan) or Unit Linked Insurance Plan (ULIP) that allows you to save money for your child’s future. The savings aspect ensures that you build a corpus over time and earn good returns. You can specify when you need these returns in advance, such as when your child enters high school or college or when they marry. The life insurance aspect of these plans ensures that your child’s finances will be taken care of in the event of your untimely demise.
How Does a Child Insurance Plan Work?
As mentioned, a child plan can be a ULIP or a Guaranteed Income Plan. Both of these are life insurance products that offer death benefits as well as maturity benefits. Therefore, we must begin by understanding how these work.
A ULIP is an investment plan that promotes long-term financial wellness. The premium you pay towards a ULIP is invested in the market-linked financial instrument of your choice after the decision of applicable charges. These instruments are funds that invest in specific assets, like equity, debt, or a combination of the two. Insurance companies like Edelweiss Tokio Life Insurance offer a diverse pool of funds to choose from, based on your risk appetite and goals. In addition, a portion of your premiums is utilised to provide life cover to you. This component of the policy functions similarly to a term plan.
ULIP policies have a mandatory five-year lock-in period during which you cannot make any withdrawals from your corpus. Thus ULIPs gradually contribute to wealth creation and make it possible to build a sizable corpus which can combat inflation.
On the other hand, a guaranteed returns plan requires you to pay a specific premium, and at the end of the policy term, this plan provides a lump sum survival benefit to the child at regular times. These plans are helpful for people who require a lump sum payment at some point in the future.
How is a Child Plan Useful?
Consider this: As per the latest ET online survey, a four-year B.Tech that cost ₹25 lacs in 2022 will cost ₹64 lacs in just ten years. To combat this steep inflation, you need investment avenues that generate good returns over the long term.
A ULIP-based child insurance plan can assist you in paying for your child’s education expenses: Parents want to give the best education to their child, whether at reputable domestic educational institutions or esteemed international universities. But paying for these respected educational institutions requires more than simple savings. To cover the cost of college, you need a sizable corpus of money. For instance, you will need to consider several expenses, like education inflation, changes in foreign exchange rates, tuition costs, living expenditures, etc., if you want your child to pursue further education abroad.
Once you understand how much you need to save, you can opt for a child plan and invest the right amount periodically. Moreover, you can choose an investment strategy that will be suitable to generate the required returns.
Features of Child Insurance Plan
Several features of Child plans make them a favourable choice of investment by parents to secure their children’s financial future.
- Corpus for Child’s Education: A child plan can help you create a bright and prosperous future for your child without stress or financial strain in the future because it is specifically designed to assist in achieving long-term financial goals.
- Investment in a Diverse Portfolio: ULIP-based child plans allow you to invest in a diverse portfolio and take full advantage of capital growth. Furthermore, you have the opportunity to invest in top performing ULIP funds as per the market conditions, thanks to the ability to switch between funds. The auto fund rebalancing option ensures that your investments are protected from market fluctuations by considering your preferred investing strategy.
- Partial Withdrawal: A ULIP plan gives you the option of a partial withdrawal based on the terms of the policy if you want to support your child in developing their skill and require some money. These withdrawals are permitted after completing the required 5-year lock-in period.
- Protection in the Event of Unexpected Circumstances: One of the essential advantages of child plans is financial protection for the child in the event of a parent’s death. The child receives the sum assured under the life insurance policy when a parent dies. Furthermore, many child plans waive future premiums while keeping the policy in existence.
- Advantage of Income Tax Breaks: The premium paid for a child plan is tax deductible under Section 80C, up to ₹1.5 lakh per year. Section 10(10D) allows you to claim tax breaks on the maturity amount.
It is critical to plan ahead of time for your child’s future. A child plan can assist you in being financially prepared for any obstacle that may otherwise jeopardise your child’s career. You can begin by paying a small premium now and be future-ready.
To start on the right note, you can check out the Wealth Secure+ ULIP plan by Edelweiss Tokio Life Insurance. It has features like the rising star benefit (an additional lump sum amount in case of your demise, plus the waiver of future premiums and the continuation of policy benefits), multiple investment strategies and top-up premium options to maximise your savings. To learn in-depth about it, visit their website today.