How to Choose Best Education Plan for Child
Geeta’s daughter has excelled in school since she was a child. One of the most essential goals as a parent is to ensure that your children have a bright future and a comfortable life. So, she began looking into the various education plans available and discovered one that she felt to be rather reasonable and whose payments could be done more easily. Geeta may now encourage her daughter to pursue her education without having to worry about money.
Let us take a look at the few tips to keep in mind when choosing the best child education plan:
What Are Child Education Plans? How Do They Work?
Insurance firms offer Child Education Plans, also known as Child Plans, which are investment-cumulative insurance policies. These are touted as investments that help parents to save for their children’s higher education fees while also giving financial stability to the child in the event of the parent’s untimely death.
A portion of the premiums goes toward life insurance, while the rest is invested in equity or debt instruments to help the youngster save for college. In the case of a Child Education Plan, life insurance coverage is extended to the parent. The insurance plans mature when the child reaches the age of 18, and the final payment is made.
How Do You Pick the Best Child Education Plan?
Selecting an excellent child education plan is vital for the child’s long-term development. Given the fierce competition for degrees and the rising cost of school, there is pressure on both parents and children when it comes to higher education: pressure on children to perform well, and pressure on parents to give appropriate financial support.
Invest in Plans that include a Premium Waiver Benefit
Premium waiver benefits are available in most child plans, either as an option or as a requirement of the primary plan. The premium waiver is crucial because, in the event of the parent’s death, the insurer waives future premiums while continuing to finance the life insurance policy until maturity. This ensures that, in addition to the death benefit, the maturity benefit established at a specific age is maintained as planned.
Go for Equity-linked Plans if you are willing to take a chance
If you want to invest in equities and have a long- time horizon, say for at least ten years, then unit-linked child plans (ULIP) are a good option. It is well documented that equities provide the best profits over longer time periods, and parents must take advantage of this chance. In an ideal world, the child plan would include a well-balanced mix of growth and debt funds, as well as risk protection. Choose a child insurance plan with a system transfer option to ensure that your financial profits are safeguarded.
Opt for Simple Endowment Plans if you don’t want to take any risk
Equity-linked plans are not suitable if the market uncertainty is low and the investment period is less than 10 years. Look for endowment plans instead. It does not accumulate much for child ULIP plans, but it is well covered by market uncertainty.
What are the Tax Benefits you get in Child Education Plan?
Due to the life insurance component, premiums paid to keep the kid policy in existence are tax-deductible under Section 80C. The overall maximum under section 80C is Rs. 1.5 lakh, which covers other popular tax-saving products such as Tax Saver ELSS Mutual Funds, Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Life Insurance Plans, and so on.
The payout from these plans is tax-free as long as the annual premium paid is less than Rs. 2.5 lakh. If the annual premium paid exceeds Rs. 2.5 lakh, the payout will be subject to applicable Capital Gains taxes. This provision was added to the Finance Bill for 2021.
Choosing the best education plan for your child is one of the most major considerations you will ever undertake. The approaches listed above will assist you in selecting the optimal plan from the many options available. You might be able to save enough money to pay for your child’s future school if you use the appropriate technology. Although child programs are more expensive than ordinary programs, the advantages of maturity make them a good investment.
When should you begin making child education plans?
The short answer is that you should get started as soon as possible. Starting early allows you to invest for a longer period of time, allowing you to build wealth more steadily. It's preferable to pick a strategy that encourages long-term investing.
Is it feasible to withdraw money from your plan in instalments?
If you need money before your plan's maturity date, a partial withdrawal option can come in handy. The ability to withdraw money in tiny amounts can be quite helpful in addressing rising school costs.