When it comes to a child’s education, every parent wants to provide the best of it, for which a huge corpus of funds is required. It lets you fulfil the future financial obligations, such as a child’s higher education, a child’s marriage, etc.
ULIP is a type of life insurance which offers the dual benefit of insurance & investment. Under this plan, a part of the premium is allocated towards life insurance & the rest towards investment. One can opt to invest in debt, equity, or both, depending upon the financial objectives & risk acceptance level, making it an ideal investment option. It provides flexibility to switch between the funds anytime during the policy tenure.
Reasons to Buy a ULIP Child Education Plan
Mentioned are the reasons a policyholder should buy a child education plan:
- When parents know that their child will be able to pursue higher education in future, it provides them with a sense of financial security.
- If higher studies are opted for by the children, the plan will also cover the tuition fees.
- It will include the future educational expenses when children need the funds to incur their educational costs.
- Children will get financial assistance to meet the education-related costs in case their parents die.
- This plan also takes into consideration the inflation cost.
Things to be considered while buying a ULIP Plan for a Child’s Education
While looking for a plan, parents often use a ULIP Calculator to assess the return amount and the premium amount to evaluate whether a ULIP suits them best or not. Let us understand the things that should be kept in mind while purchasing a ULIP plan for a child’s education:
- Policy Features
It is advised to consider the features, investment tenure, premium payment frequency, etc., before selecting a ULIP. The selected plan should align with the future financial obligations towards your child.
- Risk Portfolio
Take into consideration certain factors, such as risk tolerance level, type of funds offered, riders available, etc.
- Insurance Claims Settlement Possibility
Select an insurance service provider company with a high claim settlement ratio.
- Careful allocation of Funds
The funds should be allocated in such a manner that the coverage amount & investment horizon align well with career objectives, future financial obligations, marriage, or any other life milestone.
How Does a Child Education ULIP Work?
Provided are the steps to be followed while using ULIP for child education:
Step 1: Estimate the Future Cost
Initially, estimate the future education cost of your child to assess the amount of funds required to be raised. This will include understanding the present cost of education, inflation expected, the age of your child, & investment horizon.
Step 2: Fund Selection
Choose an appropriate plan that includes a good combination of debt & equity with a strong financial background of the insurance company. While looking for a ULIP, one should also consider the availability of partial withdrawals once the lock-in period is over.
Step 3: Premium Allocation
Once the premium is paid & the associated charges have been deducted, the balance amount is invested in the funds chosen. The allocation of funds will depend on the risk tolerance level, long-term financial objectives, & investment horizon of an investor.
Step 4: Wealth Accumulation
As ULIPs are market-linked, the funds accumulated grow when the market performs. Also, the regular premium payments instil the habit of disciplined savings & taking advantage of the power of compounding.
Step 5: Maturity & Payout
The pay-outs will be received by the policyholder at the time of maturity to incur educational costs. Some of the ULIP plans allow partial withdrawal of funds to meet the costs, if any, during the policy tenure.
Step 6: Review Regularly
Keep reviewing the performance regularly & switch between the funds depending on the same. This will allow wealth creation to meet your child’s educational costs.
Eligibility Criteria
Provided are the eligibility parameters to be met to buy a ULIP for child education:
- The minimum age to buy a plan is 18 years in the case of the policyholder, i.e. either parent or guardian.
- The maximum age to buy a plan is 60 years in the case of the policyholder, i.e. either parent or guardian.
- The minimum age to buy a plan is 0 years in the case of a nominee, i.e. a child.
- The maximum age to buy a plan is 18 years in the case of the nominee, i.e. child.
- The maturity age for the child under this plan is between 18 & 25 years.
- The maturity age for the parent under this plan is 70 years.
- The investment tenure ranges between 10 & 30 years.
- The minimum sum assured amount should be 10 times the premium amount annually.
Benefits of a ULIP Child Education Plan
Provided are the benefits of a ULIP child education plan:
- Build Corpus Funds
This plan allows a policyholder to meet the expenditures by accumulating funds.
- Collateral to Raise a Loan for Higher Education
This plan can also be used as collateral against a loan for higher education.
- Dual Benefit
While the Best Policy for Child may provide protection only, ULIPs offer dual benefits of insurance & investments. Due to this combined benefit, ULIPs provide a policyholder with growth of wealth & secure the financial future of their child.
- Higher benefits Over Inflation
There is a hike in educational costs of up to 10 to 12% due to inflation. Under ULIPs, the return rate is higher than the inflation rate.
- Financial Support for Medical Treatment
This plan allows partial withdrawal of funds once a lock-in period of 5 years is completed, providing liquidity of funds to meet any medical emergencies.
- Premium Waiver Benefit
If the policyholder dies, the amount of sum assured will be paid to the beneficiaries. Also, the premium amount is waived off, as it is then paid by the insurance company.
- Tax Benefit
This plan offers a deduction of tax on the premium amount paid, for a maximum of up to INR 1.5 lakhs. The interest paid on the educational loans is exempt from tax. The maturity proceeds would be exempt from tax if the premium amount paid is up to INR 2.5 lakhs
Conclusion
Due to the dual benefits of ULIPs, i.e. insurance & investments, these plans offer financial security, tax advantages, wealth creation, etc. Be it school fees, education-related costs, or any other costs, this plan includes everything.