ULIP for Child Education

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Every parent wants to provide their child with the best of everything. However, securing a good education for your child can be expensive. A prudent financial plan can help you save a corpus for the future and fulfil your child’s dream. Unit-Linked Insurance Plans (ULIPs) enable you to achieve your long-term financial goals while providing insurance coverage. Let’s better understand how to invest in a ULIP for child education expenses.

ULIP for Child Education

A ULIP is a financial product that provides insurance coverage and investment options. With a ULIP, you can invest in equity, debt or a combination of both. Your investment earns market-linked rewards based on your asset allocation. You can invest in a ULIP to build a corpus that helps with your child’s future education expenses.

Types of ULIP Plans Offered for Child Education

There are different ULIPs available in the market that cater to different needs. You can select a ULIP that offers a waiver of premium rider to secure your child’s future education expenses. A waiver of premium rider waives future premiums if something happens to you during the policy term. However, it keeps the ULIP active. On maturity, your beneficiary or heir will receive a payout of the fund value, which can be used to finance your child’s higher education.

How Do ULIPs Help in Child Education?

ULIPs can help parents plan for their child’s education in several ways. Here’s how ULIPs can help.

• Goal-Based Investing

  ULIPs allow parents to invest for a specific goal. For example, if you want to save for your child’s education, you can invest in a ULIP plan designed for this purpose.

• Flexibility

  ULIPs offer flexibility when it comes to investment options. Parents can choose from different funds based on their risk appetite and investment horizon. Some ULIPs also allow parents to switch between funds, which can help manage risk and maximise returns.

• Insurance Coverage

  ULIPs provide insurance coverage, which means the policyholder’s family will receive a lump sum payout if anything happens to the insured. The life coverage helps parents who want to secure their child’s future, even if they are not around for it.

• Tax Benefits

  ULIPs offer tax benefits under Section 80C^# of the Income Tax Act. Parents can claim a deduction of up to INR 1.5 lakhs for the premium paid towards a ULIP plan Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)^# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

  In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

  Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

  ULIP plans offer tax exemptions on the life insurance payout.

• Waiver of Premium Rider

  Most ULIPs offer a waiver of premium rider. Parents can opt for this to ensure the plan continues even in their absence. Future premiums get waived, and the investment continues. On maturity, the beneficiary or heir receives the accumulated corpus to help them with their higher education.

What Are the Benefits of ULIP for Child Education?

When you opt for a ULIP for your child’s education, you enjoy the following benefits:

• Long-Term Investment

  ULIP plans are long-term investments that help build a corpus over several years, enabling you to secure your child’s education.

• Customised Investments

  ULIP plans offer flexibility in investment, allowing you to switch between equity, debt and balanced funds depending on market conditions.

• Partial Withdrawals

  ULIP plans allow partial withdrawals after a five-year lock-in period, helping you meet your child’s short-term education expenses.

• Life Coverage

  ULIPs offer life coverage to the policyholder or parent. The payout your beneficiary or heir receives if something happens to you can help take care of your child’s future education costs.

How to Choose the Right ULIP for Child Education?

Choosing the right ULIP plan for your child’s education can seem daunting. Here are some factors to consider when choosing a ULIP plan:

• Your Investment Horizon

  You should select a ULIP that matures before your child leaves for college. Identify a plan that aligns with your investment timeline.

• Your Risk Appetite

  Carefully consider your risk appetite before choosing your ULIP fund allocation. Investors can select their debt and equity fund allocation based on their investment timeline and risk appetite.

• Charges

  ULIPs have additional premium allocation, policy administration, fund management, and surrender charges. Consider the costs of various plans before selecting a policy.

• Investment Flexibility

  Many ULIPs limit the number of switches you can make. You should look for plans that allow higher investment flexibility and switches to maximise your returns.

• Life Coverage

  Select a plan that offers a sum assured that meets your family’s financial needs. It should be adequate to help fund your child’s higher education.

ULIPs are a great investment option for parents who want to plan for their child’s education. ULIPs provide the benefits of insurance coverage and investment opportunities, which can help you achieve your financial goals for your child’s future. ULIPs are long-term investments, so you must start planning and investing early to safeguard your child’s education. With the right ULIP plan, you can rest assured that you are investing in your child’s future and setting them up for a successful and fulfilling life.

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• An explanation of whole-life ULIPs
• Confused between Sum Assured and Fund Value in ULIPs? Know them at your fingertips

ARN - MC/06/23/2691