How Much Child Insurance You Need

How Much Child Insurance You Need?

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Out of the many landmark moments in life, having a child can be considered a life-altering event in terms of personal, social and financial responsibilities. On that note, the financial security of one’s own family is a consistent worry for most and once a child arrives, the need to ensure that they are economically sound becomes paramount.

Other than the obvious costs of a child’s medical needs in the early stages of life, the cost of education constitutes the bulk of expenses involved in raising a child – something which as many as 60% of respondents in a survey admitted they were apprehensive about. Inflation is pushing up the cost of education consistently and in order to make sure that your child’s future is covered, it makes sense to start investing and saving as early as possible.

Child education plan is somewhat like augmented insurance instruments – they are designed to ensure financial security while also doling out financial aid at key turning points in his or her life, primarily at different progressing stages of education. Therefore, as a responsible and moneywise parent, it falls on you to select and begin investing in the best possible child plan.

What is a Child Education Plan?

A child educations plan can either be a simple term insurance instrument, which pays out a set sum of money at different turning points in the child’s life or unit linked plans, which can cover the child’s education costs while also compounding the money you save through the plan and generate wealth. The insurance instrument also makes sure that your child’s education does not suffer by any means in case an unfortunate event comes to pass. A number of general insurance companies in India are providing a wide range of such policies.

If you are looking to begin investing in a child education plan , here is a comprehensive description of benefits and eligibility factors for the top 5 plans in the market.

Plan Name

Age of Entry

Max. Maturity Age

Policy Term

Sum Assured

Aviva Young Scholar Advantage Plan

21-45 years

60

10-25 years

x10 annual premium

SBI Smart Scholar

18-57 years

65 years

8-25 years

x7 annual premium

MetLife College Plan

20-45 years

69 years

12-24 years

2,12,040 to 5 Cr.

MaxLife Shiksha Plus Super Insurance Plan

21-50 years

60-65 years

15-25 years

x10 annual premium

Aegon Life EduCare Advantage Plan

20-60 years

75 years

14-20 years

1 lakh to unlimited

 

Benefits and Details

Aviva Young Scholar Advantage Plan – Apart from the regular tax benefits guaranteed under Section 80c, this unit-linked child plan pays out both guaranteed death benefits as well as maturity benefits. Along with that, there are loyalty additions which are paid out at certain time intervals. With this plan, you can also test your own investment risk appetite and spin your wealth because the plan provides for 7 different fund options to invest in.

Aegon Life EduCare Advantage Plan – A participatory child education plan with a limited premium payment option which provides lump sum payouts in the last 4 years of the policy’s life. You can also avail loans under the plan of up to INR 5000 minimum to a maximum of 60% of the policy’s surrender value after completing 3 years.

Max Life Shiksha Plus Plan – This linked insurance plan does not offer any liquidity during the first 5 years of the policy term. The plan’s benefits, however, does cover family income benefits and future premium funding in the event of the life insured’s death. There is also the usual tax benefits applicable under Section 80c along with a guaranteed loyalty bonus of 0.20% of the fund value from the 11th policy year onwards. This value is added as extra units to the policy for every year until the end of the policy term.

SBI Smart Scholar – This unit link child plan provides diverse investment opportunities with 9 different fund options to choose from. In the event of the life insured’s death, the policy pays out the base sum assured and also waives future premium payments to ensure that that policy continues effectively. Maturity benefits can be disbursed by way of term settlements or using a lump sum amount at the end of the policy term.

MetLife College Plan – This child education plan provides certain cushions for policyholders in case they are unable to pay premiums. Failing to pay the annual premium will convert the existing policy into a reduced paid-up benefits policy which will pay out a discounted sum assured upon maturity. Policyholders are also open to receiving tax benefits and can avail loans against the policy after 3 years of the policy being in effect.

General Planning Advice

Beginning sooner than later with your saving plan is definitely one of the cornerstones of building a sound financial base for your child. Here are a few things to keep in mind when you start building.

  • Begin by calculating how much you’ll need to save to be able to smoothly fund your child’s education. It might not be possible to get a definite amount in case your child hasn’t reached an age yet where you can ascertain which line of studies he or she might pursue. However, getting a fair estimate against each probable option should serve as a decent starting point. For example, let’s look at a simple series of calculations: 

Let’s begin the calculation with a current total savings of 3 lakhs and the present age of your child as 3 years. The point at which he or she is to start his higher education is 18 years of age, you have: (18 – 5) = 15 years at hand to save up for higher education. Assuming that you wish to cover your child’s education till post-graduation level (Management and Business courses), the current cost this year itself is approximately 26.00 lakhs INR. Factoring in 6% inflation compounded over the next 15 years, you will need to have saved up a total of 62.3 lakhs INR by the time he or she is 18. Therefore, saving 62.3 lakhs INR over 14 years translates to stashing away INR 21,332 per month, earmarked for your child’s education. 

  • Once you have the amount you need to save locked down, you will need to set up a sound investment plan to consistently generate wealth and enable you to reach your financial goals. There is a plethora of investment instruments available through which you can begin saving for your child’s education. All you need to do is have a clear understanding of your own risk appetite before you begin investing. As general advice, you should aim to build a diversified portfolio using a child education plan, something which enables you to spread your savings over multiple investment instruments including equity, bonds, mutual funds, PPF and NSC. 
  • Investing is not a fire-and-forget operation. You will need to consistently and constantly monitor your portfolio, how far you are from your savings goals and in turn, rebalance your portfolio if necessary to account for various market forces. If you need to, have a talk with your fund manager and see if you have better, more robust investment options available to you.

When it comes to saving for your child’s future, a comprehensive child education plan is an absolute necessity. Although premiums on such policies are generally higher than average, the benefits and protection they provide are unparalleled.

You may also like to read: 5 Long Term Investment Options For Your Child

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