The best gift parents can give their children is a sound education. Education is an investment which pays the best dividends. The roots of education run deep and its fruits last a lifetime. Therefore, Children’s Education Planning is an important responsibility of parents. It calls for proper financial planning. To provide the best education for children, you will have to spend a lot of money. Education is no cheaper. Forget studying abroad, studying in India too is very expensive.
What is Accidental Insurance Plan?
An accident is an uncertain, unplanned event, it just happens. Soaring medical costs and quality time lost due to not being able to work, prove to be very costly. An accidental insurance comes into the picture in case of accidents. An accident may get a person partially or totally disabled, impacting his earning capabilities. An accidental insurance plan covers the insured in case of an accident. Accidental Insurance does not cover suicide, self-injury, armed force operations, war and so on.
Features of Accidental Insurance Plan
- Accidental insurance must be renewed each year. It can be renewed every year, just like a Term Insurance and Accidental Insurance Plan.
- Maximum sum insured depends upon the insurer. Based on your income, some insurers offer 60-100 times your monthly income. Others offer 8 to 10 times your yearly income as a sum insured.
- Few insurers provide accidental insurance to dependents, but have limitations vis-à-vis sum assured.
- Currently there are no income tax benefits of availing Personal Accidental Insurance. However, the claim amount you receive is not taxable.
Benefits of Accidental Insurance Plan
Accidental insurance is generally the last policy which people think of. While health insurance covers the insured’s unexpected hospitalization costs, term insurance helps take care of family’s financial needs in case of the insured’s demise. Term insurance doesn’t provide financial assistance in case the insured is disables fully, temporarily or permanently. Accident insurance has the following benefits:
- Life insurance policies offer accident riders. However, these are limited to permanent disability or a basic cover for accidental death up to a certain extent of the sum assured. A standalone personal accident policy covers you for all losses including temporary disablement, income loss and hospitalization.
- The insurer will pay the insured’s family, in case the insured dies in an accident. The nominee gets 100% of the sum assured.
- A permanent partial disability may result in loss of speech, eyesight, loss of a toe or fingers. The insured receives a percentage of the sum assured for a specific time period, or as a lump sum payment.
- In case of a permanent total disability, the nominee is entitles to make a claim for the total sum assured.
- In case of a temporary total disability like a fracture, the insurer provides a daily or weekly benefit.
Why Children Education Planning?
Parents need to provide quality education for their children. Education being expensive, children education planning is a must.
Avail waiver of premium rider to ensure that the child gets a good education, even if parents are not found.
Premium paid towards Children’s Education Plans are eligible for tax deductions. The amount received on maturity of the plan is also tax-free.
Investment options to plan for a Child’s Education:
SIP (Systematic Investment Plans):
- A popular investment option is a Systematic Investment Plan in mutual funds. A small sum is set aside each month which appreciates steadily and over time gives returns sufficient to cover the college expenses of the child. It is very important to shift the corpus to a debt instrument, 3-5 years before the intended goal or target date of the Child’s college education.
Public Provident Fund (PPF):
- Public Provident Fund opened in the name of the person as well as the child is a commodity followed practice. This investment is risk-free and enjoys tax benefits. Financial planning for Children’s Education using a Public Provident Fund needs to be started when the child is still young.
Children Insurance Plans:
- Children Insurance Plans are unique and one of a kind. These may be Endowment Plans or Unit Linked Insurance Plans (ULIPs). Just like other Insurance plans, premiums are paid on these plans too. Maturity benefits are paid on the maturity of such plans.
- Under Endowment Plans, investment is made in debt instruments and the returns are limited. The bonus accrued is given to the investor. This is a twin benefits plan giving: Insurance + savings.
- The parents of the child are the proposer of the Child Endowment Plan. The proposer is also the life assured in the policy. The policy is taken on the life of the proposer in a Child Endowment Plan.
- If the proposer/parents dies, then the children get the money for their education (sum assured is paid). But, the plan doesn’t end here. The insurer then funds the policy by paying the remaining premiums. The child endowment policy matures when your child is 18-21 years of age. When the Child Endowment plan matures, the insured gets a second guaranteed lump sum amount which can be used for children’s education. This plan is great because of the twin-payouts.
- Under a Unit Linked Insurance Plans (ULIP), 100% of the amount can be invested either in debt or equity depending on the risk appetite of the investor. Unit Linked Insurance Plans (ULIP) gives higher returns than Endowment plans. An investor can opt for either of them and even switch between them. ULIPs have a compulsory 5 year lock-in.
Waiver of the premium rider in the Child Endowment Plan:
You must opt for a waiver of premium rider in a Child Endowment Plan. A rider is an additional benefit that can be obtained by paying a slightly higher premium. If the parent dies before the plan matures, a death benefit is paid out immediately. The uniqueness of this plan is that all the future premiums are waived off and are paid by the insurer. On maturity of these plans, a guaranteed lump sum amount is paid out. The payout happens at two stages: one on the death of the parent and another on the maturity of the policy.
Eligibility criteria for Child Education Plans:
- The entry age to buy a child education plan varies from insurer to insurer.
- Entry age is 0-17 years for child and 18-57 years for the proposer.
Factors to consider when availing the best Children’s Education Plan:
- Affordable premiums
- Flexible plan which helps to gradually increase savings for the future
- Opt for the pay or benefit rider
- Adequate sum required for the Child’s Higher Education costs
- Rider benefits like Health Insurance, Accident cover
- Competitive pricing and returns
- Assured amount for children in case of parents death
- Claim settlement ratio of the insurer
- Amount of money to set aside for the child’s education
- Less administrative costs