Each parent wishes to provide the best for their child in life, particularly education. With increasing tuition fees in India and worldwide, financial planning is no longer a choice. It’s a necessity. But how does one go about it?
Unit Linked Insurance Plans can be the answer. It is a powerful and sometimes underutilised tool that unites market-linked investment with insurance. Employed for planning the education of children, they offer growth and protection, so your dream for your child is not derailed.
What Makes ULIPs Ideal for Child Education?
ULIPs are twin-benefit financial products. They offer an opportunity to create wealth through equity or debt fund investments. You also get a life insurance cover to safeguard the goal in case of the untimely demise of the parent.
Principal Reasons to Invest in ULIPs:
- Disciplined Long-Term Investment
ULIP comes with a minimum lock-in of five years. This encourages long-term disciplined saving. It is necessary for building a noteworthy corpus to invest in education.
Life Cover to Achieve the Objective
In the event of the policyholder’s death, the life cover component helps secure the child’s financial future by paying out the sum assured.
Market-Linked Growth
By investing in equities, bonds, or balanced funds, ULIPs can offer higher returns. It is an important advantage when planning for rising education costs.
Tax Advantages
Premiums paid and maturity proceeds are tax-exempt under Sections 80C and 10(10D) of the Income Tax Act.
Real-Life Planning: A Situation That Tells It All
Picture this: Rohan, a 34-year-old marketing manager from Bengaluru, invests in a ULIP with a ₹1,00,000 premium every year. The goal is to finance his 3-year-old daughter’s college education. With a 15-year investment horizon, moderate equity exposure, and an assumed return of 8% per annum, the projected corpus could be over ₹30 lakhs by the time his daughter turns 18.
If Rohan passes away during the policy term, the insurance company pays the sum assured to his family. With the Waiver of Premium rider, the company continues to invest on his behalf. Hence, the policy remains active. The maturity benefit is paid out when due.
How to Choose the Right ULIP for Child Planning?
Not all ULIPs are created equal. It all boils down to getting the right plan tailored to your needs.
Fund Options and Flexibility
You should go for ULIPs that allow switching between equity, debt, and hybrid funds. Look for plans with free switches to adjust your allocation based on market conditions.
Charges and Transparency
You need to understand the policy’s cost structure. It is suggested to opt for plans with relatively low fund management and policy administration charges. It’ll help maximise your returns.
Waiver of Premium Rider
Especially important for child plans, this rider ensures that in case of the policyholder’s death, the insurer continues to pay the future premiums. This measure keeps the investment on track until maturity.
Conclusion
You need to do a lot more than put money aside for your kid’s education. There has to be a vision, consistency, and protection against life’s uncertainties. ULIPs offer all three in a single investment product. Hence, it can be a strategic choice for Indian parents, especially considering education inflation.
But begin investing as soon as possible. Your investment will need time to grow. With time, ULIPs will bridge the gap between your aspirations and your child’s future.
