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Children Education Planning

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Child Education Plan

The best gift parents can give their children is a sound education. Education is an investment which pays the best dividends. The roots of education run deep and its fruits last a lifetime. Therefore, Children's Education Planning is an important responsibility of parents. It calls for proper financial planning. To provide the best education for children, you will have to spend a lot of money. Education is no more cheap. Forget studying abroad, studying in India too is very expensive.

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Concepts & FAQ's Children Education Planning

What is Children's Education Planning?

Children's Education planning involves making plans for the career growth of a child well in advance. The process involves planning the cost of education at current rates and then considering the inflation factor of quality education. Food and accommodation expenses need to be planned along with the college education.

Features and Benefits of Children’s Education Planning:

  • A quality education is the best gift parents can give their children.
  • Education is an investment which pays the best interest.
  • To provide the best education for children, you will have to spend a lot of money. Planning for child's education should begin when the child is young. This gives sufficient time to collect money for their education.
  • With Children’s Education plans, funds for education are set aside. So, parents will not have to compromise on providing quality education to children.
  • Education plans are eligible for Tax benefits.

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Why Children Education Planning?

Child's Education:

Parents need to provide quality education for their children. Education being expensive, children education planning is a must.

Rider Benefits:

Avail waiver of premium rider to ensure that the child gets a good education, even if parents are not around.

 

Tax Benefits:

Premiums paid towards Children’s Education Plans are eligible for tax deductions. The amount received on maturity of the plan is also tax-free.

Investment options to plan for a Child's Education:

1. SIP (Systematic Investment Plans):

A popular investment option is a Systematic Investment Plan in mutual funds. A small sum is set aside each month which appreciates steadily and over time gives returns sufficient to cover the college expenses of the child. It is very important to shift the corpus to a debt instrument, 3 -5 years before the intended goal or target date of the child's college education.

2. Public Provident Fund (PPF):

Public Provident Fund opened in the name of the person as well as the child is a commonly followed practice. This investment is risk-free and enjoys tax benefits. Financial Planning for Children's Education using a Public Provident Fund needs to be started when the child is still young.

3. Children Insurance Plans:

Children Insurance plans are unique and one of a kind. These may be Endowment plans or Unit Linked Insurance Plans (ULIPS). Just like other Insurance Plans, premiums are paid on these plans too. Maturity benefits are paid on the maturity of such plans.

Under Endowment Plans, investment is made in debt instruments and the returns are limited. The bonus accrued is given to the investor. This is a twin benefits plan giving: Insurance + Savings

The parents of the child are the proposer of the Child Endowment Plan. The proposer is also the life assured in the policy. The policy is taken on the life of the proposer in a Child Endowment plan. The proposer has to pay the premiums towards the Child Endowment policy. Higher the premium, higher is the sum assured you get in a Child Endowment plan.

If the proposer/parent dies, then the children get the money for their education (sum assured is paid). But, the plan doesn’t end here. The insurer then funds the policy by paying the remaining premiums. The child endowment policy matures when your child is 18-21 years of age. When the Child Endowment plan matures, the insured gets a second guaranteed lump sum amount which can be used for children's education. This plan is great because of the twin-payouts.

Under a Unit Linked Insurance Plan (ULIP), 100% of the amount can be invested either in debt or equity depending on the risk appetite of the investor. Unit Linked Insurance Plans (ULIP) gives higher returns than Endowment plans. An investor can opt for either of them and even switch between them. ULIPS have a compulsory 5 year lock-in.

Waiver of the premium rider in the Child Endowment plan:

You must opt for a waiver of premium rider in a Child Endowment plan. A rider is an additional benefit that can be obtained by paying a slightly higher premium.

If the parent dies before the plan matures, a death benefit is paid out immediately. The uniqueness of this plan is that all the future premiums are waived off and are paid by the insurer. On maturity of these plans, a guaranteed lump sum amount is paid out. The payout happens at two stages: one on the death of the parent and another on the maturity of the policy.

Eligibility Criteria for Child Education Plans:

  • The entry age to buy a child education plan varies from insurer to insurer.
  • Entry age is 0-17 years for child and 18-57 years for the proposer.

Factors to consider when availing the best Children’s Education Plan:

While taking a Children’s Education plan, parents should make sure they consider the following features:

  • Affordable premiums
  • Flexible plan which helps to gradually increase savings for the future.
  • Opt for the pay or benefit rider
  • Adequate Sum required for the Child’s Higher Education Costs
  • Rider Benefits like Health Insurance, Accident cover.
  • Competitive Pricing and Returns
  • Assured amount for Children in case of Parents Death
  • Claim settlement ratio of the insurer
  • Amount of money to set aside for the child’s education
  • Less administrative Costs.
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#3. Gold Saving

Wednesday, April 11, 2018, 7:05 AM

You can invest in gold for a child of yours. But, do not do it through physical-gold. The best option would be the gold ETFs, because there is no locker and other storage charges. Also, you can invest in the electronic form and there is no worry of theft. Gold has generated much better returns than most asset classes in the more long term.
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#2. Sukanya Samriddhi Account

Wednesday, April 11, 2018, 6:59 AM

Another good scheme to invest and which can help build a corpus for your child's education and is an excellent child investment plan is the Sukanya Samriddhi Account. This scheme offers an interest rate of 8.4% and is tax-free. One has to be careful that this scheme is only for the girl child. A Plan to save for her marriage or her education.
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#1. PPF (Public Provident Fund)

Wednesday, April 11, 2018, 6:55 AM

This is the best scheme to invest for a number of reasons. It is a 15-year scheme where you can build a corpus for your child's education. The current interest rate of 7.9% by far beats interest rates of banks, which are at 7%. Apart from this you get a tax rebate of up to Rs 1.5-lakhs under Sec 80C of the Income Tax Act.
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