Child Education Plans

Why Do You Need Child Education Plan?

A child education plan is important for parents to prepare for their child’s higher education expenses. With rising education costs and life uncertainties, planning early becomes essential. The following reasons explain how these plans support disciplined savings while providing financial protection for your child’s future.

1. Plan for Rising Education Cost

As a parent, you would want to provide your child with the greatest education possible. However, education costs in India continue to rise across school education, professional courses, and overseas studies. This means that you would need a large sum to meet your child's educational needs. According to Mint, Indian parents need ₹6.75 crore to raise a child in India^~.

Here, having an educational plan for your kid can enable you to build a corpus to cover future educational expenses without straining your finances.

2. Disciplined Investment for Long-Term Wealth Creation

Child education plans promote disciplined investment as they require premium payments over a particular time period. With the effect of compounding, this method enables you to accumulate a reasonable amount of money over time. You can use it to take care of your child and meet future educational expenses.

For instance^~, if you invest ₹5,000 each month from your child’s birth until they turn 18, you can create a larger corpus than if you start investing at age 10 with a higher premium amount.

^~ NOTE - Please note that these values are used just for illustrative purpose and actual return may vary.

3. Peace of Mind and Financial Protection

Education plans for children can offer both savings and insurance cover. This enables parents to have an exclusive corpus set aside for their children’s future requirements.

On the parent's sudden demise during the plan's tenure, the death benefit is paid to the nominee, providing financial support that helps secure the child's education goals even in the parent's absence. The death benefit received by the nominee is completely exempt under Section 11 read with Schedule II of the Income-tax Act, 2025 (corresponding to Section 10(10D) of the Income-tax Act, 1961). This ensures you can get sufficient funds for your child's education. Such plans not only cover higher education but also help prepare the child for the future.

4. Tax Benefits

Child education plans can help you avail tax benefits under the Income-tax Act, 2025. Eligible tax benefits on life insurance policies are available under Section 123 read with Schedule XV of the Income-tax Act, 2025 (corresponding to Section 80C of the Income-tax Act, 1961) and Section 11 read with Schedule II of the Income-tax Act, 2025 (corresponding to Section 10(10D) of the Income-tax Act, 1961), subject to the prescribed conditions. It offers tax deductions on premiums paid and tax benefits on the eventual maturity corpus. Let us clearly understand them:

• Section 123 of the Income-tax Act, 2025

You can claim deductions of up to ₹1.5 lakh every tax year on premiums paid for child insurance policies or ULIPs under Section 123 read with Schedule XV of the Income-tax Act, 2025. This is only accessible if you choose to use the previous tax system, and it only applies to a maximum of two children. This deduction is available only if the individual has opted for the Old Regime.

• Section 11 read with Schedule II of the Income-tax Act, 2025

The maturity amount or partial withdrawals from the child life insurance plan can be tax-exempt as per Section 11 (read with Schedule II) of the Income-tax Act, 2025, subject to certain conditions prescribed.

In case of Unit Linked Insurance Policies (ULIPs) issued on or after 1st February 2021, the aggregate premium payable for all ULIP  policies should not exceed ₹2,50,000 and the sum-assured ratio should not exceed 10%. For other life insurance policies issued on or after 1st April 2023, the aggregate premium payable for all such Non-ULIP policies should not exceed ₹5,00,000.

The death benefits shall be completely exempt.

5. Flexibility and Customisation as Per Your Needs

Child education plans also offer flexibility in premium payments, payout options, and investment choices. This allows you to align the plan with your financial goals as well as your child's future education needs. Let us understand these features in detail:

• Premium Paying Terms

Child education plans provide flexible Premium Paying Terms (PPT), which can be adjusted to your financial capabilities and the future educational needs of your children. Depending on how much you can afford, you can opt to pay the premiums every month, every quarter, every six months, every year, or even a single premium in a lifetime.

• Payout

Education schemes for children come with flexible maturity options like lump sum or installments based on the education expenses and timing. This is important in helping parents cover big educational bills, including school fees, boarding fees, and other living costs.

• Fund Options

As a child education plan, Unit-Linked Insurance Plans (ULIPs) can provide higher flexibility. This enables parents to customise their investments to fit their risk tolerance and academic goals.

They provide important alternatives like asset switching, partial withdrawals, and flexible payment options to preserve a child’s future.

6. Avoiding Education Loans

Many use debt to pay for their schooling. Even if an education loan can pay for these expenses, it sometimes charges a high interest rate. The loan must be repaid by your child as soon as they start earning money. Child education programs allow you to grow funds slowly but gradually.

This helps you secure the financial future of your child while reducing or even eliminating the need for education loans. As a result, both parents and children can avoid future financial pressure and pursue educational goals without the burden of debt.

Types of Child Plans

Different types of child insurance plans are customized for providing different advantages such as education support, financial protection in case of uncertainties, and long-term savings.

Below is a comparison table showing the child plans of 2026:

Different plans are meant to address diverse financial objectives and risk appetites. Choosing the right one is based on your child's future requirements and investment horizon.

How to choose the best child education plan?

Choosing the most suitable child education plan as per your children’s education needs is essential. Here is a breakdown of the steps to choose the best child plan for your children –

1. Assess your child’s education goals

- Estimate future expenses :

Find out the present cost of the education your child desires and then adjust it for education inflation in India.

- Investment horizon :

Your investment horizon will be determined by the difference between your children’s current age and the age at which they will require the funds. 

- Payout structure :

You can choose to receive the maturity amount either as a lump sum or regular payments depending on the education expenses such as tuition, accommodation, travel, books etc. If you prefer a lump sum payout, a lumpsum calculator can help you estimate the amount you would receive, allowing you to plan better for these expenses.    

2. Understand your risk appetite

Depending on your risk appetite and investment horizon you can choose from the following education plan for child –

- ULIP (Unit Linked Insurance Plan) :

If you have a higher risk appetite and a longer investment horizon (suppose your child is 8 years old and you need the funds when he/she turns 18) you can choose ULIP. A part of your investment is invested in equity and debt assets giving you the opportunity to generate higher returns of the long term. 

- Endowment plan :

Endowment plans are a safer option, suitable for people who are risk averse. The returns might be less but guaranteed as the investments are primarily in debt instruments. 

- Money back plan :

With a money back policy you receive payouts during the policy term. These are less risky than ULIPs and the payouts will help you manage irregular expenses of your children’s education.  

- Government schemes :

As a parent of a girl child, you can consider Sukanya Samriddhi Yojana as a child policy option to secure her financial future. This government-backed savings scheme is specifically designed to support a girl child’s long-term needs. The funds accumulated under this child policy will be available when your daughter turns 18 years old, helping you plan for her higher education or other milestones. 

3. Key features to consider

- Maturity benefit  :

The maturity amount of your child policy should be sufficient to cover the estimated cost of education. You can choose to receive the payout as a lump sum or in instalments, depending on your child’s education expenses. 

- Death benefit  :

Child insurance plans provide death benefit to the nominee in case of the policyholder’s demise during the policy term. The death benefit ensures that your child’s financial future is taken care of even in your absence. 

- Premium waiver benefit  :

In case of your sudden demise or disability due to accident all your future premiums will be waived of while the policy continues. 

- Partial withdrawal  :

After the initial lock-in period you can withdraw funds from the child policy to address unexpected expenses regarding child’s education. 

- Flexibility  :

Child plans offer the flexibility to choose policy term and premium payment term (monthly, quarterly and annually). In case you are investing in ULIP then you have the flexibility to choose the funds you want to invest in.  

- Add-on riders  :

In order to enhance the coverage of child education plan you can choose to add riders such as critical illness rider, accidental death benefit rider etc. 

- Tax benefits :

Child plan premiums are exempted from tax deductions under section 80C of the Income Tax Act, 1961. The maturity amount from a child education policy is tax-free under section 10(10D) ^# of the Income Tax Act, 1961.

4. Evaluate the company :

Check the company’s solvency ratio, claim settlement ratio and past fund performance (in case of ULIPs).

5. Start Early :

The earlier you start investing in a child policy, the longer you’ll have to build an adequate corpus for your child’s education. A longer investment horizon through a suitable child policy allows you to benefit from the power of compounding, helping you significantly grow your wealth over time.

6. Compare different options :

You can compare various child education plans based of features and returns online or consult an insurance agent before deciding the plan you want to buy.

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