A Child Savings Plan is an investment plan that includes funds to be invested for the secure future of your child, meeting their future financial needs, such as higher education, marriage, or any other expenses. This plan helps build a corpus for your child, along with life insurance coverage, ensuring there is no financial burden in future due to huge expenses. These plans come with dual benefits of investment and insurance. Let us first go through their different types:
Types of Child Savings Pla
Let us discuss the different types of Child Savings Plan:
- Child Education Plan
A Child Education Plan helps save for a child’s future educational goals, allowing them to meet multiple educational milestones. These plans include educational expenses, such as book costs, admission charges, & tuition fees, if any. This plan ensures access to higher education without any intervention or compromises due to financial constraints.
- Child Marriage Plan
This plan is well designed to bear marriage-related expenditures or some other major life events. It includes the accumulation of funds over the years, which can be withdrawn at a certain age of the child specified earlier.
- Child Wealth-Building Plan
This plan includes the accumulation of corpus funds to achieve long-term financial objectives, like higher education, business startups, the purchase of a house, etc.
- Whole Life or Endowment-Based Child Plans
A whole life insurance plan for children is a type of life insurance plan that is well-designed for children between the ages of 14 days & 17 years old. It helps parents with financial security & lifetime coverage at a low premium cost. It includes long-term commitments of making premium payments, with low return rates, sometimes in comparison to other plans. In any unfortunate event of a child’s death, this plan includes receipt of death benefits by the parents to meet the unexpected expenses without any added stress.
- Child ULIPs (Unit Linked Insurance Plans)
A child ULIP offers different benefits according to their income & lifestyle, securing the child’s future. These plans offer financial security, tax benefits, wealth creation, etc., by combining insurance & investment, which helps parents meet their child’s educational requirements. Whether it is school fees, higher education expenses, or any extracurricular activities, this plan covers all.
Factors to be considered while buying a Child Savings Plan
While considering a Child Saving Plan, consider the following factors:
- Objective of the Plan
It is essential to assess the main objective of the savings plan for your child. By doing this, one can customise the plan to meet the future financial objectives of your child from the plan. Let us suppose, the main objective of purchasing a savings plan is higher education, a plan that will offer high returns & well align with the milestones of your child, should be considered. If the main purpose of the purchase is to avail medical facilities, a plan having better liquidity options, i.e. early withdrawal provision, should be considered.
- Tenure of the Plan
The investment horizon plays an important role when considering a savings plan for your child. The longer the investment horizon, the more time it gets to compound till the time your child requires funds for higher education. Hence, it is important to choose the policy tenure wisely as it has to be in alignment with the future milestones of your child.
- Flexibility
The plan should be flexible enough that the parents can easily change the amount of contribution to be made, make withdrawals, & switch between the funds. This means it should be such that it allows you to either increase or decrease the amount of contributions according to your financial obligations. Also, it should allow you to make partial withdrawals in case of emergencies. In the case of market-linked securities, it should be such that it allow switching between the funds. Hence, a plan should be such that should provides mental peace with the help of adaptability, flexibility, & stability.
- Return & Performance
Before purchasing a savings plan for a child, parents are advised to compare the performance of the plan & returns provided by it in the last 5-10 years. This way, parents will select a plan that has a good track record, which will maintain a balance between growth & stability.
- Tax Benefits
Parents should be well aware of the tax benefits associated with the savings plan, as it reduces the tax burden. Most of the savings plans offer a tax deduction on the amount of premium paid u/s 80C, maximum up to INR 1.5 lakhs. Additionally, it also entitles to a tax exemption on the amount of maturity benefits released.
- Reputation of the Insurance Company
Parents, while choosing a savings plan for their child, should consider the reputation of the insurance company, which will have a direct impact on the security & performance of the funds. For this purpose, you should evaluate the claim settlement ratios, number of years of experience, customer service quality, responsiveness, etc.
- Inflation
The inflation cost diminishes the buying capacity of the individual, affecting the future financial objectives. Hence, parents should choose a plan which considers the inflation factor as well, ensuring the retention of value & supporting the child to beat the rising costs.
- Automatic Features
Parents should consider plans having automatic features such as auto-debit, fund rebalancing, etc., to maintain disciplined investments & consistency to achieve long-term financial objectives.
- Consultation
Parents can seek professional consultation, which would depend on the financial goals, risk tolerance level, & budget to select a savings plan for their child.
Conclusion
A Child Savings Plan helps build the financial future of your child by meeting the rising educational costs, the desired lifestyle, or any other relevant life event. Parents are advised to start as early as they can & should choose a savings plan for their children wisely. With systematic planning & discipline, parents can lay the foundation stone, which will let them achieve their child’s milestones. This plan not only helps to save, but also ensures a brighter & secure future.