As parents, you want to provide the best for your children, and that includes their education. However, rising costs and uncertainties can make it challenging to plan for their educational needs. This is where a life insurance policy in India can serve as a safety net for your child’s education. By understanding the benefits and options available, you can protect your child’s future while ensuring financial security. Let us explore why a life insurance policy in India is essential and how it can be a valuable asset for your child.
Securing Your Child’s Future
One of the fundamental reasons parents need life insurance is to secure their child’s future. A life insurance policy offers financial protection in the event of an unexpected tragedy. It ensures that your child’s educational needs are met even if something were to happen to you.
You have taken a life insurance policy that covers your child’s education expenses. Unfortunately, due to an unforeseen accident, you are no longer able to provide for your family. In this situation, the life insurance policy will cover funeral expenses, medical bills, and other financial obligations, relieving the burden on your family.
Cash Value: A Savings Tool for Your Child’s Future
Many life insurance policies in India for children come with a cash value component that grows over time. This cash value can be used as a savings tool for your child’s future needs such as education expenses, down payment on a house, or starting a business.
Suppose you invest in a life insurance policy for your child at their birth. By the time your child reaches college age, the accumulated cash value can be used towards their education expenses.
Coverage for Pre-existing Health Conditions
If your child has a pre-existing health condition, it may become difficult for them to obtain life insurance coverage later in life. By purchasing a life insurance policy for your child when they are young and healthy, you can ensure that they have ample coverage for the future, even if their health condition worsens.
Locking in Low Premiums
Purchasing a life insurance policy for your child at a young age allows you to lock in lower premium rates. As your child grows older, they may develop health conditions or other factors that could make it difficult or expensive to obtain life insurance coverage later in life. By securing a policy early on, you ensure that they have access to affordable coverage throughout their lives.
Let us do some calculations to understand this better:
Suppose you purchase a whole life insurance policy for your newborn child with an annual premium of Rs.10,000. The policy remains active until your child turns 18, at which point they can take over the payments if desired. The accumulated cash value and death benefit continue to grow over the years.
Now let us compare this with purchasing the same policy when your child turns 18. The premiums for the same coverage would be significantly higher due to their increased age and potential health conditions.
Transferrable Policies: A Valuable Asset
Many life insurance policies for children can be transferred to the child when they reach a certain age, typically 18 or 21. This transferability allows your child to have a valuable asset that they can use to protect their own family in the future.
Types of Life Insurance Plans for Children
When it comes to securing your child’s education, there are various types of life insurance plans available in India. Let us explore some of them:
Child ULIPs: These unit-linked insurance plans (ULIPS) offer high insurance coverage along with disciplined investments and participation in the equity market. They provide benefits such as a sum assured payout on the parent/legal guardian’s death, waiver of future premiums after the parent’s demise, and a maturity value at maturity.
ULIPs: With ULIPs, the payouts at maturity are based on market performance. They are best suited for long tenures and offer different investment funds with the potential for higher returns.
Traditional Endowment Plans: These plans provide stable returns in the form of bonuses over the sum assured. Bonuses are usually paid from the second year onwards.
Single-Premium Child Plans: In these plans, policyholders pay a single lump sum amount for the entire policy term. This eliminates the hassle of remembering due dates for premium payments and arranging finances accordingly.
Regular Premium Child Plans: Unlike single premium plans, regular premium child policies offer flexibility in premium payment. You can choose to pay the premiums monthly, quarterly, half-yearly, or yearly.
Tax Benefits of Life Insurance Policies
Life insurance policies for children in India offer several tax benefits that can help you maximise your savings. Here are some key tax benefits:
Tax Deduction on Premium Payments: The premiums you pay towards your child’s life insurance policy are eligible for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs.1.5 lakh per year.
Tax-free Maturity Proceeds: The maturity proceeds of a life insurance policy for children are tax-free under Section 10(10D) of the Income Tax Act. This means that the amount you receive on maturity, including bonuses and other benefits, is exempt from tax.
Tax-free Death Benefits: In the unfortunate event of your child’s demise during the policy term, the death benefit paid by the insurance company to the nominee is also tax-free under Section 10(10D) of the Income Tax Act.
Conclusion
A life insurance policy in India is not just a financial instrument but a safety net for your child’s education. By securing coverage at an early age, you can protect their future while enjoying numerous benefits such as cash value growth and low premiums. Remember to explore various types of life insurance plans available and choose one that suits your specific needs and goals.