Why should you buy a Child Insurance Plan?
Investing for your child’s future could be the most rewarding investment for any parent, as they are creating a livelihood for their children. It is estimated that Indian parents, on average, spend approximately Rs. 2 lakh crores every year on their children’s education. With increasing inflation and education costs, this figure is only expected to rise in the coming years. A child plan policy helps address these concerns by acting as a long-term investment option for child and offering insurance coverage for the parent.
Mr & Mrs. Mehta wanted to celebrate their girl’s 5th birthday in a manner that provides purpose. So, they decided to gift a child education insurance plan for her that will ensure a good amount of corpus is built for her college education by the time she turns 18 years. Not only this, but she will also be eligible to receive the death benefit from the policy if any unfortunate event happens to her parents during the policy term. Though she is very young to understand the importance of the gift, Mr. Mehta felt that her life would be taken care of financially, whether he was around or not.
Why invest in child insurance plans? The right time to save for children’s future is while they are still young. It gives enough time to build a decent amount of corpus to fund their college, higher education, and marriage events. By opting for child education insurance plans, it serves the dual purpose of savings and insurance coverage for the parent, so even if they are not alive, their child will continue to reach their goals. If you are looking to buy the best insurance for the child, we have listed some of the top reasons why you should consider buying these policies:
They are a combination of term insurance and investment that ensure a secure future for your child but offer lifetime protection and financial security for your family in the event of your untimely demise. These plans invest a portion of the premium in equity and govt securities to generate above-average returns, which are payable at the time of maturity.
5 Reasons why should you buy a Child Insurance Plan
- Save for child’s education
- Insurance Coverage
- Better return on investment
- Loans & Partial withdrawals
- Tax Benefits
1. Save for child’s education
There are pure child insurance plans, or you may choose to invest in Unit Linked Plans (ULIP), or money-back plans that also serve the same purpose. While the unit-linked policies provide you with the option of investing in an equity fund and benefit from the market performance, money-back plans provide a moderate appreciation of the investment. The investment in these policies is bound to compound in the future generating better returns to fund the child’s education needs.
In case you do not want to participate in equity plans, you may choose to invest in debt funds as part of ULIP or in endowment plans. Such plans offer a guaranteed maturity value which will give you a clear indication of the accumulated amount in the future, based on which you may plan for their future goals.
Once the child reaches the age of 18 years, the child insurance plans can be set to pay annual pay-outs, which will help them to finance their college education fees. However, you are also eligible to receive bonuses at the time of maturity, which may not be at par with dedicated investment plans, but it should have created a decent amount of corpus because these plans also incorporate insurance components within them.
2. Insurance Coverage
For a parent, the biggest fear while planning for their child’s future is the uncertainty of their own life. The question of what might happen to their kids after their demise or in the event of an accident, disability, critical illness, etc., is always constant. The child insurance plans help alleviate this fear as these policies come coupled with insurance cover that should minimize the risk on a parent’s life by creating a safety net in the form of the lump sum death benefit for their children’s future ensuring their education and future are not affected.
3. Better return on investment
With many different child insurance policies available in the market, each follows a unique strategy to maximize the returns through dynamic and balanced equity-debt allocations. While the fund managers of these policies ensure that the investments fetch the best possible returns on your money, some plans use auto rebalancing options that help maintain a healthy allocation in each asset class.
Since most funds are allocated in equity funds, the returns posted by most child insurance plans are quite high, which beats the inflation in the medium and long term. Thus, although the returns do not match the figures generated by pure equity funds or primary markets, these plans are a safe bet to get stable growth on investments.
4. Loans & Partial withdrawals
While making any investment, it is natural to come across emergencies requiring partial withdrawal. In a child insurance plan, partial withdrawals are possible to plan for unexpected events. Similarly, you may also avail of a loan on the child insurance plan for school fees, college fees, field trips, etc., for up to a certain percent of the sum assured. Using these methodologies, you may choose to withdraw and complete those tasks at hand related to children without compromising on the long-term financial and insurance goals.
5. Tax Benefits
Like in all insurance policies, child insurance plans provide income tax benefits on the premiums you pay for the policy, up to Rs. 1.5 lakhs for deduction under section 80C of the Indian Income Tax Act. Likewise, the proceeds received through maturity amount, and any partial withdrawals that one might make during the policy term are classified as tax-free.
A child insurance plan is a safe bet to create financial freedom for your children, for their education and life events, without the need for them to expect others to fulfill their dreams. To help your children achieve their dreams, just make sure to select the right insurance plan, so their needs are taken care of, even in your absence.
