Investing in a child’s future is one of the most important obligations and objectives for parents. The rising expenses of education and the increasing competition of professional verticals make it critical to plan financially for a child’s education and general growth from an early age.
Here’s why investing early in a child insurance plan is important.
Compounding advantage
Starting early allows for the power of compounding, in which even tiny investments grow over time, providing considerable returns by the time the child reaches adulthood.
Affordable premiums
Early investment typically results in lower premiums as the risk is spread over a longer time.
Secured future
It assures that, regardless of unanticipated circumstances, the child’s future educational and other key requirements are adequately satisfied.
Tax benefits
Investing in some kid plans provides tax benefits that might help the family minimise its total tax burden.
Cultivating a habit
Starting early instils the habit of financial planning and accountability in the child from a young age.
Benefits of investing early in a child insurance plan
Higher education funding
Child ULIPs and Child Endowment Policies are designed to help save for specific educational events in life. These policies pay benefits in a lump sum at certain times like when the child joins college or on graduation to guarantee that key educational costs are catered for.
The benefit in this case is that it is easy to set aside cash for future use while avoiding its diversion to other expenses.
Loan facility
Most child insurance plans come with an option of taking a loan against the policy’s cash value once it is built up. This can be very useful for paying for unplanned educational expenses or any other emergency without affecting the policy’s advantages.
It offers a relatively convenient and often cheap source of funding compared to other forms of unsecured credit.
Waiver of premium
This is an important aspect whereby, if the policyholder (usually the parent) dies, the insurer does not require the policyholder to pay future premiums. It goes on as though the premiums are being paid so that the financial planning for the child’s future is not compromised.
This feature is very important as it guarantees that the benefits will never stop in case of any eventuality.
Flexibility in usage
These funds are not limited to paying for education only as many individuals may think. It can also be used for any other major life event such as paying for a wedding, starting a business or any other financial undertaking as deemed fit under the policy terms.
This flexibility makes child plans a versatile financial instrument in long-term family planning.
Step-up provisions
Some plans allow you to make additional contributions to the plan as your income increases. This feature is especially beneficial for managing increased expenses and growing financial objectives without having to purchase a new policy.
Partial Withdrawal
Some child plans offer the option of making partial withdrawals from the accumulated amount to cater for interim needs like school fees, educational tours, or any other developmental needs. This feature increases the availability and flexibility of the funds without cancelling the policy.
Market linked growth
Child ULIPs participate in equity and debt markets with an expectation of getting better returns in the long run. This exposure to market-linked growth potential is especially useful given the long-time horizon before the funds will be required, thus being consistent with the goal of long-term educational funding.
Risk coverage
The life insurance part of child plans guarantees that in the unfortunate event of the death of the policyholder, a specific amount is paid to cater for the child’s needs and future ambitions. This lump sum can be used to cater for the present and future needs of the child’s lifestyle and education.
Disciplined savings
The development of a habit of saving involves making regular premium payments to create a dedicated fund for the child. This systematic approach to saving helps to ease the pressure on the finances as the cost is spread over some time.
Tax relief
The amount paid towards a child’s plan is tax-exempted under Section 80C of the Indian Income Tax Act and the maturity/ death benefit is tax-free under Section 10 (10D) thus increasing the overall utility of the investment.
Customisable payouts
The majority of plans let policyholders decide how and when the benefits will be received, providing options for their coordination with significant life events or educational stages, thus helping with financial planning and management.
Inflation protection
These plans assist in protecting future educational expenses from the effects of inflation by compiling a corpus over the long term so that the purchasing power of the saved amount is not damaged.
Riders and add-ons
Additional coverage for critical illness or accidental death and disability can be added to the basic policy so that there is more protection against several types of risks.
Education continuity
Certain plans are meant to cater for financial needs from the time a child joins primary school right to college and even college education abroad, if need be, ensuring continuous educational progress without financial interruptions.
Child plans including child insurance are not just about building a financially secure future for a child, they are about creating a sense of financial security for a family and being able to keep major life goals on track in the face of the unforeseeable.
It is a strategic financial decision that enables families to fund their children’s dreams and goals in an efficient and planned manner.
Why child planning is crucial today?
Due to the ever-changing global environment, there is a need to focus on the acquisition of specialised education and career development. Thus, early financial planning for your child is not only an insurance of your child’s further education and career but also the formation of responsible financial behaviour.
Purchasing a child insurance plan is not merely an investment; it is the foundation on which the future of an individual is being designed. Therefore, if you start early enough, you are in a position to deal with the escalating costs and odds of the future to give your child the liberty to pursue their dreams.
Article and permission to publish here provided by Nayan Bhardwaj. Originally written for Supply Chain Game Changer and published on June 25, 2024.
Cover image provided by Nayan Bhardwaj.