Child Education Plans

Why Do You Need Child Education Plan?

Child education plan is essential because of the rising cost of education. A child education plan is a dedicated long term investment plan to ensure that your child’s academic pursuits. Here are the reasons to invest in a child education plan:

• Plan for rising education cost

Education cost is rapidly rising every year in India. As per a report by LocalCircles, 44% of the parents surveyed say their children's schools have increased fees by 50-80% ^(a) or more between 2022 and 2025. When it comes to higher education, the expense of pursuing an average engineering degree, can cost up to Rs. 2 lakhs to Rs. 15 lakhs^(b), or more, depending on the institution. Studying overseas is even more expensive as Indian students spend approximately Rs. 10 lakhs to Rs. 60 lakhs ^(c) annually to study in the US. 

Child education policy helps you to build a corpus dedicated for your child’s future education. The best child education plan will help you combat the rising cost of education so that your child’s dreams don’t face any financial constraints. 

• Disciplined investment for long-term wealth creation

Child plan encourages you to invest in a disciplined manner through regular premium payments. The approach of consistently investing helps in the accumulation of a sizeable amount over the long term. By starting early, you can take advantage of the power of compounding to grow your investments substantially and provide the required funds for your child’s education. 

For example, investing Rs.10,000 per month from when your child is 6 until they turn 18 can grow to Rs.40.36 lakh at a 15% expected return.
But if you start later—investing ₹20,000 per month from age 12 to 18—the fund value will be just Rs. 23.42 lakh.
By starting 6 years earlier, even with half the monthly investment, you can accumulate nearly 72% more by investing regularly.

• Peace of mind and financial protection

Child education plans are also known as child insurance plans as they have a built-in insurance component. The life insurance component provides a death benefit in case of your untimely demise. The death benefit ensures that your child’s dreams are not compromised even in your absence. 

The safety net of the death benefit will give you the peace of mind that even in your absence your child’s future education will be secured. 

• Tax benefits

Since child plans are essentially child insurance plans these can help you save tax under the various sections of the Income Tax Act, of 1961.

- Section 80C :

All the premiums you pay for a child education plan are eligible for tax deductions under section 80C up to a limit of Rs. 1.5 lakh.

- Section 10(10D):

The maturity amount of a child plan is also exempted from deductions under section 10(10D).

• Flexibility and customizable as per your needs

- Premium paying terms :

Child education policy offers you the flexibility to choose your premium payment terms (monthly, quarterly, half yearly, annually, or as a one time investment). 

- Payout :

You can choose whether you want the maturity benefit to be paid as a lump sum or in a staggered manner helping your child pay for his education as per his needs. 

- Fund options :

In case your child plan is a ULIP then you will have the flexibility to choose the funds you want to invest in depending on your risk appetite and investment horizon.

• Avoiding education loans

By starting early and investing regularly in a child education plan for your children’s future you won’t need to take a loan for their education. This will reduce the financial burden on your children once they are done with their education.  

Given the rising cost of education and life’s uncertainties, it’s crucial that you start investing in a child education plan to secure the financial future of your children.

What are the Key Benefits of Investing in a Child Insurance Plan?

Here are the key benefits of investing in a child policy:

• Disciplined long term investment

- Systematic investment :

Child insurance plans ensure that you invest in a systematic manner for the policy term to achieve your goal. This approach instils a sense of discipline to save for your children’s education. 

- Power of compounding :

By investing in child plans over the long term you can take advantage of the power of compounding to grow your wealth substantially for your children’s education.

• Financial Protection

- Life insurance :

The life insurance component of a child insurance plan provides the much needed financial safety net in case of your absence. The death benefit payout enables your children to pursue their goals without any financial constraints. 

- Waiver of Premium :

In case the policyholder passes away the insurer waives off the remaining premiums keeping the policy active. The child receives the corpus at the time of maturity of the child policy.  

• Combating education inflation

Year-on-year education inflation rate for the month of May 2025 is 4.12% ^(d) in India.  On the other hand, as per Funds India, Indian equities have given 15% returns over 20 years ^(e). In case you choose to invest in a ULIP child plan with a higher exposure in equity then over the long term you will be able to beat the rising education inflation.

• Tax benefits

The best child education plans to help you save tax under the various sections of Income Tax Act, 1961.

- All the premiums you pay for a child education plan are eligible for tax deductions under section 80C up to a limit of Rs. 1.5 lakh.

- The maturity amount of a child plan is also exempted from deductions under section 10(10D).
 

• Flexibility

Child education plans offer flexibility in the following manner:

- Types of investments :

Depending on your financial goals, risk appetite, and investment horizon you can choose the type of investment plan between endowment plans (guaranteed returns) or ULIPs (market linked returns).

- Premium payment :

Depending on your comfort you can choose the premium payment frequency and depending on your investment horizon you can choose the premium payment term. 

- Partial withdrawal :

In the case of ULIPs after the lock-in period of 5 years you can make partial withdrawals based on your child’s needs.

- Add-on riders :

Along with the base child insurance plan you can choose to add riders (waiver of premium rider, critical illness rider, accidental death benefit rider etc.) as per your needs to enhance the coverage.  

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.    

2.Understand your risk appetite
 

Depending on your risk appetite and investment horizon you can choose from the following – 

- 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 invest in Sukanya Samriddhi Yojana to secure her financial future. It is a government backed savings scheme designed to secure a girl child’s future. The funds will be available when your daughter turns 18 years old. 

3.Key features to consider
 

- Maturity benefit  :

Maturity amount of your child’s plan should be enough to cover the estimated cost of education. You can choose to receive the payout as lump sum or instalments as per 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 to invest the longer you will have to build an adequate corpus for your child’s education. A longer investment horizon gives you the opportunity to take advantage of the power of compounding to significantly grow your wealth.

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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