All parents want to be able to give their children, better than they had in life when it comes to everything.
Child Savings Plans
Education and marriage are undoubtedly among the biggest financial commitments for families. A child savings insurance plan is a powerful tool that helps parents turn the dreams for their children into reality. These plans offer a plethora of features which are designed to safeguard child's dreams and build a strong financial foundation.
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1. Built-in life insurance component
In the event of your untimely passing away, the child savings plan provides a built-in financial safety net. This corpus allows your child to continue pursuing education, career goals, and dreams without a break. This benefit, similar to in term insurance policies, ensures that your child's aspirations remain protected, even if the unexpected happens.
Let's say you choose a child savings plan with an annual premium of ₹50,000. The life cover could be 10 times the annual premium, which would be ₹5 lakh. In case of your untimely demise during the policy term, your child would receive this sum.
Some plans might offer a fixed sum assured, regardless of the premium amount. For example, a plan could offer a fixed sum assured of ₹10 lakh, irrespective of the premium you pay.
2. Roadmap to Financial Success
Child plans build consistent savings through regular premium payments. This simple approach helps accumulate a substantial corpus over time. By the time your child reaches major milestones like higher education, marriage, or starting a business, they will have the financial resources ready to support any endeavour.
Take the example of Priya, who bought a child savings plan for her newborn daughter, Anya, with an annual premium of ₹50,000. Over 18 years of consistent payments, she invested a total of ₹9 lakh. Assuming a modest annual return of 6%, the plan could accumulate approximately ₹16.4 lakh by Anya's 18th birthday.
Benefits of the savings plan include funding Anya's college education, thereby avoiding education loans. Additionally, the corpus can support Anya's wedding expenses or serve as seed capital if she opts for entrepreneurship. This financial foresight ensures Priya is prepared to support Anya in achieving her aspirations without financial strain.
3. Securing your child’s journey through life
A child plan's objective is to secure your child's future despite changing conditions. This is why some child plans offer flexibility when it comes to premium payments and payout methods. This option, chosen at inception or buying the policy, allows you to select the policy payment interval. You can also choose how you would like to receive the payout in lump sum or over predecided fixed intervals.
What's more, in the unfortunate event of the policyholder passing away, the future premiums of the policy are waived and the policy remains in force. This ensures your child receives the same maturity amount as planned and can fulfil his/her goals.
4. Tax-Smart Savings
One of the most popular benefits of child savings plans are tax sops. They often qualify for tax deductions under Section 80C of the Income Tax Act. These tax benefits can significantly reduce your overall tax burden, effectively increasing the value of your investment and allowing you to save more for your child's future.
Take the case of software professional Meera. She started a child plan for her daughter, Ramya and was able to claim a tax deduction of ₹50,000 (the annual premium) under Section 80C. This directly reduced Meera’s taxable income, leading to a tax saving of ₹15,000 that year (assuming a 30% tax bracket). Over the 15-year policy term, this adds up to significant savings, boosting the overall value of her investment for Ramya's future.
5. Nurturing Financial Independence
Investing in a child plan means you're not just saving money but instilling valuable financial habits in your child. As your child grows, they will witness the power of disciplined savings and long-term investment. This can lay the groundwork for their financial independence, setting them on a path to success in adulthood.
Imagine the pride you will feel when your child understands the value of saving and investing. By involving them in discussions about the plan, creating a visual chart to track its growth, and encouraging their saving habits, you are laying the groundwork for their financial independence. They will be equipped with the tools to make sound financial decisions, achieve their dreams, and build a secure future.
A child savings plan is more than just a financial instrument; it is a gift of love, security, and opportunity. By harnessing the interesting features and benefits of these plans, you can empower your child to achieve their full potential and build a brighter future for themselves.
Disclaimer: The information provided on the Website does not constitute investment advice, financial advice, trading advice, or any other form of advice, and you should not interpret any of the financial content as such. Please conduct your own due diligence and consult with a financial advisor before making any investment decisions. Midday does not endorse or promote any such activities, and you access them at your own risk, fully understanding the monetary and legal consequences involved. Midday shall not be held responsible for any losses you may incur as a result of using any such apps or websites.
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