Ask any parent what they want for their child and the chances of hearing ‘the best’ as an answer is most likely to be. Every parent wants their child to pick the best education and make a career choice that will get them settled in the future. In fact, several parents would willingly forego their desire to upgrade a car or go on a vacation, but not compromise this one financial goal. Fact is, a child’s education goal cannot be postponed. It cannot be compromised and it is not negotiable.
To address this most important financial need, life insurers have come up with child insurance plans. These could be either traditional policies or unit linked insurance plans in which the parent is the policyholder and the child is the beneficiary.So, when the policyholder survives the tenure of the policy, periodic payouts are made at intervals to meet the money required to fund the child’s education.
There are two kinds of child plans:
- Endowment plans and
- Unit linked plans.
Endowment plans invest in debt instruments and provide stable returns. You are also eligible for bonus. But since the investments are in debt products, returns are moderate and may not match the rising education inflation. The ULIPs invest in the markets and the payouts are based on market return.
You have the choice to receive the policy proceeds in one go or through a Money Back option, which enables you to receive prefixed money year after year for a fixed tenure of say four or five years. Likewise, when taking such a policy, it would make sense to opt for the waiver of premium rider, which kicks in, when the parent is no more around to service the policy.
The policy with such a rider does not cease to exist on death of the policyholder. Instead, the policy continues to pay for the child’s education but no further premium is required to be paid for the money to be transferred for education.
What more, as the policyholder, you could claim tax deduction on premiums paid towards this policy under Section 80C of the Income Tax Act. You could use this disciplined option to help you achieve your child’s future financial needs.
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