Should you go for Child Plans as education cost shoots up?

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March 27, 2021 12:04 PM

With a child-plans investor gets a guaranteed payout for financing the child’s education and hobbies, hence, the child’s needs are taken care of even if the parents are not around.

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According to a recent survey by the National Sample Survey Office, between 2008 and 2014, the average annual private expenditure for general education (primary to post-graduation and above) has shot up by a staggering 175 per cent. During this same period, the annual cost of professional and technical education has increased by 96 per cent. These expenses include course fees, books, transportation, private coaching and other related costs. Hence, experts believe it would be fair to assume these costs have increased further since 2014.

Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance says, “Rough estimates suggest education inflation in India is about 10 – 12 per cent on an annual basis. Even if we are to consider a conservative estimate of about 6-8 per cent inflation, it would create a significant financial impact. For instance, an engineering degree that currently costs around Rs 6 lakhs and MBA Rs 10 lakhs is likely to cost more than Rs 15 lakhs and Rs 30 lakhs after another 15 years.”

He further adds, “This is in India alone. For Gen Z and Gen Alpha, studying abroad has become a critical life goal. Many are vying for ivy leagues or other universities abroad to support their career goals.” Hence, proper planning is the need of the hour.

To start with child plans are one way to go about. There are various insurance companies that offer child plans – not all of these plans are traditional plans that invest only in debt funds, there are market-linked policies that allows investors to invest in both debt and equities.

However, experts say, one should consider the different range of events for the child such as their schooling, higher studies, hobbies, sports, etc. and make provisions for them, before opting for a child plan.

With a child-plans investor gets a guaranteed payout for financing the child’s education and hobbies, hence, the child’s needs are taken care of even if the parents are not around. Industry experts say child plans are known to usually offer better returns when compared to traditional investment avenues such as PPF or FDs.

Among other benefits of a child plan, having such a plan ensures that the child is financially protected, in case of an unforeseen event. The goals of a remain, in that case, remains unaffected. For instance, in case of death or disability of the policyholders, child plans make periodic payments and provide for the child’s goals. Most of these plans also come with the in-built waiver of premium, wherein the future premium for the policy is waived off if anything happens to the policyholder.

These policies are also quite flexible, as they offer multiple risk covers and payout options along with different payment terms. For instance, the policyholder can choose the regular premium, under which premium can be paid on a regular basis, be it annually, semi-annually, or quarterly. Policyholders also the option to choose the single premium option, under which they will be able to make the premium payment only once.

These plans also offer tax benefits – the premium paid is eligible for tax deduction U/S 80C of the Income Tax Act, 1961, and on death or maturity claim profits also is eligible for tax benefit U/S 10 (10D).

According to a recent survey by National Sample Survey Office, it states that between 2008 and 2014, the average annual private expenditure for general education (primary to post-graduation and above) has shot up by a staggering 175 per cent. During this same period, the annual cost of professional and technical education increased by 96 per cent. These expenses include course fees, books, transportation, private coaching and other related costs. Hence, experts believe it would be fair to assume these costs have increased further since 2014.

Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance says, “Rough estimates suggest education inflation in India is about 10 – 12 per cent on an annual basis. Even if we are to consider a conservative estimate of about 6-8 per cent inflation, it would create a significant financial impact. For instance, an engineering degree that currently costs around Rs 6 lakhs and MBA Rs 10 lakhs is likely to cost more than Rs 15 lakhs and Rs 30 lakhs after another 15 years.”

He further adds, “This is in India alone. For Gen Z and Gen Alpha, studying abroad has become a critical life goal. Many are vying for ivy leagues or other universities abroad to support their career goals.” Hence, proper planning is the need of the hour.

To start with child plans are one way to go about. There are various insurance companies that offer child plans – not all of these plans are traditional plans that invest only in debt funds, there are market-linked policies that allows investors to invest in both debt and equities.

However, experts say, one should consider the different range of events for the child such as their schooling, higher studies, hobbies, sports, etc. and make provisions for them, before opting for a child plan.

With a child-plans investor gets a guaranteed payout for financing the child’s education and hobbies, hence, the child’s needs are taken care of even if the parents are not around. Industry experts say child plans are known to usually offer better returns when compared to traditional investment avenues such as PPF or FDs.

Among other benefits of a child plan, having such a plan ensures that the child is financially protected, in case of an unforeseen event. The goals of a remain, in that case, remains unaffected. For instance, in case of death or disability of the policyholders, child plans make periodic payments and provide for the child’s goals. Most of these plans also come with the in-built waiver of premium, wherein the future premium for the policy is waived off if anything happens to the policyholder.

These policies are also quite flexible, as they offer multiple risk covers and payout options along with different payment terms. For instance, the policyholder can choose the regular premium, under which premium can be paid on a regular basis, be it annually, semi-annually, or quarterly. Policyholders also the option to choose the single premium option, under which they will be able to make the premium payment only once.

These plans also offer tax benefits – the premium paid is eligible for tax deduction U/S 80C of the Income Tax Act, 1961, and on death or maturity claim profits also is eligible for tax benefit U/S 10 (10D).

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