Start Planning for Your Child's Education
As a parent, your kids are the most important part of your lives. Smallest of your happy moments depend on them. While trying to maintain a balance between emotions & practical life, managing spending and savings often becomes a tricky task.
A huge contributor to this success is financial planning for your child’s future needs at the right age! There is really no better gift you can give your child, than the promise of a secure future with Child Plans that encompass child insurance plans & child education plans.
You would do anything to make your children happy and to secure their life & future. So Child Insurance Plans have been specially customized to address your child’s future needs, even in your absence.
Decide On A Plan That Protects Your Children's Dreams
What is a Child Insurance Plan?
A child insurance plan is a combination of insurance and investment that ensure a secure future for your child. Life cover is available as a lumpsum payment at the end of policy term. Not just this, these plans also provide flexible payouts at important milestones of your child’s education. While one may not want to think about unfortunate situations like death or serious medical illness, it’s important that you shield your child’s future against such incidents. Child Insurance Plans ensure that your child’s future financial needs are taken care of even in your absence.
But Why Should You Choose Child Insurance Plan?
Simple monthly savings might not suffice the growing higher education costs. For your child to shine in the competitive environment, education fees should be the last constraint. Child insurance plans provide you the flexibility to invest based on your child’s education needs, your current financial status, and other monetary goals. Typically, child insurance plans provide a life cover of around 10 times the annual premium. Additionally, these plans also provide partial withdrawal facility as needed. Along with this, you can also avail tax benefits for the premium paid.
How a child insurance plan will secure your child's future?
- Provides financial security during the most crucial years of your child’s life.
- Offers a perfect blend of investment and savings in a single plan.
- Safeguards child’s future, even after demise of the parent.
- Favors disciplined, long term savings, which usually becomes a challenge.
Things To Keep In Mind While Buying Child Plan :
As parents, it is natural to want the very best for your child – the best schooling, the best peer group and the best opportunities in life. Parents are the backbone of a child till he/she not become independent. The role of parents in education is to motivate their children in the field of subject they are interested in so that the child never feel unmotivated or disheartened. As Indians, it is strongly ingrained in us that education is everything, and we want our kids to go to the top schools for their chosen fields. But top schools charge top dollar, and if you want to make this dream a reality, there are some things you need to do:
1. Identify the Requirement
The first step should be to identify the needs of your child. There is more cost associated with child education then only the school fee. Extra classes, Transportation, Extra Curricular activities etc. are cost which parents have to incur for upbringing their child. When these associated costs rises, the cost of the child education takes more than 60% of the housing budget. Moreover, the rise in the cost of education with a rate more than inflation, along with resulting decrease in value of money make planning more difficult. Identifying the exact requirement will help in knowing the savings required for reaching the desired goal.
2. Historical and Current School Fees - An Estimate for Future Inflation
If you have a young child, then finding out what the school costs today is easy but deciding what rate of inflation to assume to see what its going to cost in the future can be hard.
Often schools don’t inflate their fees much on an annual basis, but will suddenly implement a jump in the fee, every few years. This comes to a higher average rate of inflation.
You might find that tuition fees increase anywhere between 8% and 12% on an average annual basis. It’s easy to say – take the conservative assumption for your planning, but the difference can be huge.
Suppose a school charges Rs. 25 lakhs (assuming INR) today and your child will likely attend in 5 years. With 8% annual inflation, fees in 5 years will be Rs. 36.73 lakhs.
With 12% annual inflation fees in 5 years will be Rs. 44.05 lakhs.
That’s quite the difference, and planning to build a corpus of Rs. 44 lakhs may not be easy for everyone. Consider assuming a conservative rate of inflation, and allow yourself a buffer. You can assume 10% annual inflation on education and create a corpus for your Child’s education accordingly
3. Have Adequate Protection
The biggest worry for the parents is the future of child when they are not there. Although child insurance plans provide financial protection in case of any unexpected happening, the product requires a very high contribution for availing higher insurance coverage. The wiser approach is to assess your insurance needs and then buy the adequate coverage. A pure term policy is a very cost effective means for getting a high insurance cover. Also, ensure that you have a good health insurance to protect yourself from medical emergencies which may arise in the future.
4. Start Early
The planning should start with the birth of a child. Instruments like Equities & PPF, which generate good returns, demands a longer horizon for investment. By early stage planning the savings requirement gets reduced giving room for planning for other life goals. Since emotions play a bigger role in planning for child future, any delay can strain your finances forcing you to overlook other financial goals which are equally important.
5. Follow Asset Allocation
There are many investment avenues and each one has its risk return characteristics. This sometimes creates more confusion leading to investment mistakes. Equities, Debt MF, PPF, Gold, & even FDs have a role to play at various stages of your child growth. Asset allocation is an appropriate strategy which not only helps you in choosing the right mix of these asset classes; it also manages your investments more efficiently.
6. Invest Smartly to Build the Corpus
There’s a broad timeline you can follow when investing for this goal:
If you have less than 3 years left for the goal, avoid equity and gold, and invest only in debt and fixed income products.
If you have more than 3 years and less than up to 10 years left for this goal, invest between 40% and 60% into equity, 10% to 20% into gold to hedge the equity exposure and the balance 30% to 40% into debt / fixed income.
If you have more than 10 years left for the goal, then you can invest up to 75% in equity, 10% to 20% in gold and the remaining 10% to 20% component into debt.
7. Write a Will
You nominate your child in all the investments believing that he will get the desired money when you are not there without any hassles. However, a nominee is only a custodian of your money. To ensure, after you the child receives the benefits as you have planned, write a will giving details of your wishes. The will should be simple, comprehensive, & clear to avoid any disputes in future.
8. Teach Your Kid About Money
Our personal finance decision evolves from the learning’s we have gone through during our upbringing. Remember the Piggy Bank. It is the first step which inculcates a behavior of savings for the goals from your limited earnings (Pocket Money). Make your child aware on the various aspects of personal finance so that when he/she takes up the first job to become self-dependent, there is eagerness to plan for the future.
There can be other factors which will be equally important in your child planning. But a financial planning approach starts with identifying your requirements and planning for contingencies.
9. Get Started Right Away
THE SURE-FIRE KILLER TO YOUR GOAL IS DELAY, Regardless of how old your child is and how much time you have left for the goal, start investing for it today itself. The earlier you start, the less you’ll need to invest each month to achieve the same amount of money at the end of the goal.