How often does the thought of not being able to fulfill your child’s slightest wish haunt you? Ever since your child was born, their every dream has been your dream. You know your child will have a bright future after receiving the best ever education that money can buy. But it is this precise vision that is now beginning to scare you.

Your child is still young, but already the costs of their tuition, school uniform, books, educational material, toys and other paraphernalia are quite astronomical. You (correctly) deduce that by the time your child reaches the age for pursuing higher education, their tuition fees alone would be an extremely high figure. Factoring in an incremental rise in your annual income plus inflation, how will you pay for your child’s higher education?

term insurance

Majority of parents spend on average more than Rs 18 lakh-20 lakh in raising a child by the time their teen graduates from high school. | Photo Courtesy: Huffington Post

At this point, you might do one of two things:

1) Buy term insurance to cover your family and pay for your child’s education, or

2) Buy the best child insurance plan for your child’s future

Both are excellent approaches, but with one fundamental difference.

Approach 1

The problem with the first approach is that though your family will receive a large fund of money on your unfortunate demise, term insurance ceases to exist at this point. This approach would work for a term insurance plan with a tenure of about 15 or 20 years, with the policy holder passing away after 10 years have elapsed. By this time, the plan would accumulate enough money to pay for your child’s future education.

But, if the policy holder were to pass away in just two or five years, the term plan money would be insufficient. Also, term insurance does not have a maturity benefit, so if you outlived the plan tenure, you would not receive any of the premiums you paid. This would hardly benefit your child’s education prospects.

Approach 2

In contrast, the second approach would ensure that your child’s education is taken care of even in your absence. Though the plan ceases to exist at the point of demise of the child’s paying parent, the insurer still invests in the plan while waiving off the remaining premiums.

Thus, whether the parent passes away early or outlives the plan tenure, the child’s education is completely taken care of.

Almost all reputed insurance companies today offer the best child plans that you can choose from. Most of these are traditional child plans, but some are market-linked plans that invest in debt and equity instruments. Besides, you can get tax benefits under Sec 80C for investing in child plans. The returns from the child insurance plan are tax deductible under Sec 10D.

Featured Image Credits: Aaron Burden via Unsplash

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Posted by The Indian Economist