Every parent wants the best for their children and their future. Spurting fees in reputable education institutes in India and overseas along with rising inflation means that parents today are more worried about their child’s education than ever before. Irrespective of their financial earnings, parents are today making use of child education plans to ensure they have adequate financial corpus for the future education needs of their child.
Understanding child education plans
A child education plan is a dual purpose financial instrument offering both protection and investment return. For the protection component on offer, such plans are also commonly known as child insurance plans. Child insurance plans are offered by almost every life insurance company, allowing parents the option to secure the financial future of their children.
Child insurance plans are available both as market-linked ULIP plans and traditional endowment plans. A child insurance plan works like a life insurance plan although some plans terminate when the child attains either 18 years or 21 years of age depending on the plan and the insurer.
Types of child education plans
Child education plans are available as both market-linked ULIP plans and the traditional endowment plans. Parents or guardians can choose the most appropriate plans as per their risk assessment and the financial corpus needed for the child’s future education.
- ULIP child education plans: ULIP or Unit Linked Insurance Plans are those that offer returns as per the market conditions. ULIP plans invest a higher component in the equity market while a smaller investment component is reserved for debt instruments. As the policyholder, parents or guardians have the right to decide how much they want to allocate for each component. With equity markets offering higher risk but higher rewards, ULIP plans if managed well can offer a higher quantum of returns at maturity compared to traditional child education plans.
- Endowment-based child education plans: Endowment child education plans are more traditional plans, offering a fixed payout after a predefined period of time or on maturity. Such plans are also known as money back plans (with some variation in periodical payout frequency) and give parents a cushion to plan the future education and other financial needs of their children by knowing the amount they will be getting at maturity.
Choosing the best-suited child education plan
Parents often wonder which child education plans suit the future needs of their children the best. While both child education plan types have their benefits, plans must be selected as per the risk profile of the parents. For example, low-risk profile parents are better off opting for traditional endowment plans offering more secured returns compared to highly financially secure parents who can consider investment in ULIPs provided they are capable of managing the plans well.
Insurance experts across the spectrum recommend parents check the various illustrations offered by each child’s education plan before choosing the most appropriate plan for their needs. For example, a majority of illustrations given by child insurance plans suggest 4% or 8% return assumptions. For a best-case scenario, the sooner you start investing in a child education’s plans, the better the chances for it to attain a substantial corpus for your child’s education needs in the future.
Child education plans at a glance
- Child education plans offer a payout at maturity or within the policy tenure, ensuring a financial corpus for your child’s future education needs.
- Child education plans also safeguard the child in the event of the death of the parent or policyholder during the policy tenure.
- On average, a child education plan offers 10 times the premium paid over the policy tenure.