All You Need To Know About The Working Of Child Education Plan
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Insurance policies known as child education plans are designed exclusively for parents who want to pay for their children's higher education costs. The cost of higher education has increased over time, which has increased parents' interest in these policies.
What Are Child Education Plans and How Do They Function?
Insurance firms offer investment-based insurance products called Child Education Plans or Child Plans. These investments are promoted as ones that enable parents to put money aside over the course of the policy to pay for their children's higher education costs while also offering the child financial stability in the event of the parent's untimely demise.
A portion of the plan premiums are used to offer life insurance, and the remaining sum is invested in equity or debt instruments to assist the child save for the costs of higher education. The parent is also covered by the life insurance in the case of a child education plan. When the child reaches the age of 18, these insurance policies mature, and the last payment is made.
Types Of Education Plans For Children
Based on the sort of payout being offered, child plans can be divided into two groups. Which are:
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Child ULIPs
At the conclusion of the insurance term, these Child Education Plans offer a lump sum payout. Although the maturity proceeds of these plans can be utilised for any reason, the main objective is to provide money for the child for whom the plan is acquired to pay for higher education costs.
Similar to other Unit Linked Insurance Plans, child ULIPs invest in equity and debt instruments (ULIPs). The tenure offered is the only distinction between a Child Education Plan ULIP and other ULIPs. While ordinary ULIPs are available with policy durations of 10 to 25 years, a Child Education Plan ULIP pays out when the beneficiary reaches the age of 18.
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Child Endowment Plans
This kind of child education plan offers assured returns and life insurance coverage. After the child turns 18 years old, these plans normally start making 4 payouts that are each equivalent to 25% of the sum assured plus any relevant incentives. The level of risk in this kind of child policy is low because of the guaranteed payouts. However, the returns provided by these strategies are frequently quite meagre.
Top Features Of A Child Insurance Plan
Below are the critical elements of child plans that enable your child insurance plan to function well in achieving your child's long-term objectives:
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Term Life Insurance
Child Education Plans have a life insurance component, with a sum assured that can be up to ten times the annual cost. This life cover limit is in accordance with the regulations set forth by the Insurance Regulatory and Development Authority of India, which oversees the country's insurance market (IRDAI).
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Financial Options
Policyholders in Child Endowment Plans are unable to choose which specific asset classes to invest in. The investments that insurance firms automatically make on behalf of policyholders are primarily debt investments, such as Treasury Bills, Corporate Bonds, and Government Bonds.
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Equally Effective Child Education Plans
Contrarily, Child ULIP Plans give policyholders considerable flexibility regarding how their money will be invested. The list of funds handled by the insurer is the only pool from which to pick, though. For instance, the policyholder of the SBI Smart Scholar can select from a choice of 9 funds, while the ICICI Smart Kid Solution gives 13 fund alternatives spanning the categories of equity, debt, and hybrid funds.
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Lock-In Period
The lock-in duration for the ULIP Child plan category in India is five years. Under child endowment plans, there is no lock-in period. For the majority of Child Plans, partial withdrawal is permitted starting in the sixth year. After the five-year lock-in period is up, the policyholder has the option of cancelling the policy and withdrawing all investments.
Conclusion
While some people might be tempted to choose a Child Plan only because of the advantages offered, it must be remembered that having adequate money set up for children's higher education should be the topmost priority.
Also Read:
SBI Child Plan Calculator Online: How Calculate The Maturity Benefits
