How does a Child Insurance Plan Protects your Child’s Future Goals?

Children are full of possibilities and aspirations. As a parent, you would want to make sure they can achieve whatever they want to do. Higher education plays a major role in ensuring a brighter future for your child.

Irrespective of what stream your child has opted for, a good university and a reliable course will ensure your child’s secure future. As a parent, your prime responsibility is to make sure your children can receive the higher education they need to build their successful careers. You can kick start securing your child’s future with the best child insurance plan.

Child ULIP and endowment life plans are the types of investments that offer financial protection for the goal and life cover for peace of mind. Here’s an overview of how they play their part in times of need:

• Multiple Fund Options: You can invest in different types of funds through ULIPs while availing all the other benefits of the plan. Some of the best ULIPs, like Promise4Growth Plus by Canara HSBC Life Insurance, can offer up to twelve funds for investment.
• Bonus Additions: ULIPS can offer bonuses for long-term and disciplined investors. So, if you are a regular investor and invest for the long term, you can expect higher growth.
  
  ULIPs offer the following two bonuses:
  1. Loyalty Bonus for staying invested for more than ten years.
  2. Wealth Boosters for regular investments.
• Life Cover: Your ULIP child plan is also a life insurance plan. Hence, it includes a life cover element. The life cover ensures a fixed sum assured to the family in the case of the policyholder’s untimely demise.
• Goal Protection (Premium Protection Option): Now, there is a unique feature that makes your ULIP child plan different from an ordinary plan. That is the Premium Protection option. In this, the plan investment component of the plan continues to grow until the policy’s term is completed.
• Tax Savings: Last but not least, your ULIP child education plan is a tax-friendly investment instrument. All the accrued bonuses that you will receive at the end of your policy are tax-exempt 10(10D) of the Income Tax Act. Besides, you can avail tax deduction u/s 80C of the Income Tax Act on the returns from your ULIP child plan. However, the tax exemption on accrued bonuses u/s 10(10D) is limited to ₹2.5 Lakhs.
  
  Now you can easily decide what is the best investment for a child's education.

How Much is the Cost of Good Higher Education?

The cost of education has been one of the fastest-growing expenses in India. The average cost of an engineering course in India from a reputed institution can go up to ₹5 lakh per annum. The fee for private colleges is even higher than that of public ones.

Here is an estimate of the educational cost if your child enrols on a 4-year engineering course in any stream:

• Premium Publicly Funded Institutions in India: The cost would go around ₹4-5 lakh per annum.

• Premium Private Institutions in India: The total cost would be somewhere between ₹12 to 20 lakh.

• Premium Foreign Institutions in the UK and the USA: If she/he manage to get enrolled into one of the top universities from the US, UK or EU, the cost can even go beyond ₹ 1.5 Crores.

Learn: how to plan for the best higher education of your child.

What is the Effect of Inflation?

Now, if you compound all these costs with the inflation rate, the amounts will grow to be much higher in 10 years. The inflation rate in higher education has been about 4.37% year-on-year in India.

Thus, you not only need a good investment option to beat inflation as well as tide you over the taxes, but you also need to protect the goal. You can do so by either:

• Investing money in good instruments and buying a separate term life cover, or

• You can invest in a life insurance plan, which also protects your child’s goal

What are the Investment Options as per Risk Appetite? 

Various investment instruments can work as a child education plan. Depending upon your risk appetite, you can invest in different instruments.

• Investing Safely: You need to safeguard your savings from the three risks: inflation, taxes, and market volatility. Thus, you have the option of investing in the following:
  1. Endowment life insurance plans
  2. ULIPs 
  3. Public Provident Fund (PPF)

All three options offer safe and tax-free growth to your money. However, they all have different features. Here’s what they offer:

1. Endowment Plan:
   • Returns are guaranteed but fixed.
   • Investing in regular premiums is important.
   • Long-term investors may receive additional bonuses.
   • Partial withdrawals are not available. However, you can borrow money against the policy. 
2. ULIP Limitations and Advantages:
   • Debt funds do not guarantee returns but offer a safe yet market-linked return. Returns are linked to the debt market instead of equity.
   • Partial withdrawals are available after the five-year lock-in period.
   • Regular investment in the lock-in period is important.
   • Bonuses are available to long-term investors. 
3. Public Provident Fund:
   • The maximum annual investment is limited to ₹1.5 lakh.
   • Returns are backed by a sovereign guarantee.
   • Annual investments are not compulsory.
   • No life cover benefit. 

• Aggressive Growth: If your investment risk appetite allows, you may want to aim for higher growth for the investment term. Equity is one of the most promising and well-regulated aggressive investments. Here’s how you can allocate your money to equities:
  1. Invest in ELSS (Equity Linked Savings Schemes):
     • These are pure equity mutual fund schemes with tax benefits.
     • These funds have a three-year lock-in period for every unit you buy.
     • Returns may face long-term capital gain tax if the gains exceed ₹1 lakh.
     • No option for life cover with the investment. 
  2. ULIPs:
     • Enjoy tax benefits with fund investment.
     • Choice of aggressive and passive funds.
     • Goal protection option to continue the investment even after your untimely death.
     • The bonus may be available for long-term investors.

Conclusion

Buying a child insurance plan will ensure that your children will not face any financial worries in case of any unfortunate events. Life is pretty unpredictable, and hence, you should be prepared to protect those whom you love. While the investment options might be limited for child protection, several insurance providers offer amazing plans. 

At Canara HSBC Life Insurance, we have options for you that combine both wealth accumulation and life cover. Combined with the power of tax benefits, these plans can offer you threefold benefits. So, what’s the wait for? Leverage our freely available and user-friendly calculators to determine when to begin investing and with how much.