Raising a child is one of the most challenging tasks you do in your life. How you bring him or her up today will decide what kind of person he or she will grow up to be tomorrow. Taking care of your children’s needs is an expensive affair, considering how education costs are rising rapidly. While higher education in India costs lakhs of rupees, it can getcostlier if your son or daughter wants to study abroad. So, you must start doing proper financial planning for your children at the earliest. Creating a substantial fund is the only way to ensure that they never have to compromise ontheir dreams.
Investing in a Child Unit-Linked Insurance Plan (ULIP) is an effective idea that will ensure that your son or daughter achieves his or her life goals. If you are not sure what is ULIP for children, read on to learn about it.
What is a Child ULIP?
In general, a ULIP is a life insurance policy that offers the additional advantage of investment. The insurance companyinvests your premium amount to invest in equity, debt, or a combination of funds as per your aspirations and risk appetite after deducting applicable charges. ULIPs are long-term investment instruments that help you create asubstantial fortune over an extended period.
A Child ULIP works similarly, but the insurance company pays the maturity amount to your kid at the end of the policy tenure. He or she can use the money to fund his or her higher education. You can use a ULIP return calculator to determine how much growth you can expect over the years and invest accordingly. Ensure that the policy’s maturity date aligns with when your child will need the fund for higher education.
Child ULIP – Advantages
The policy offers many benefits, but the most significant one is the life cover. If an unfortunate event leads to the policyholder’s demise, the insurance provider pays the death benefit to the child. Depending on the plan, the insurer either pays it as a lump sum or in monthly intervals. Additionally, Child ULIPs come with a waiver of premium feature. If the parent dies, the insurance company offers the benefits even without any future premium payments. By purchasing a Child ULIP, you can ensure that your son or daughter’s future is not at stake in the case of your untimely absence.
Apart from this, a Child ULIP offers tax exemptions. You can avail of a tax deduction of up to INR 1.5 lakh yearly on the premium paid for the policy under Section 80C of the Income Tax Act, 1961. Moreover, Section 10 (10D) makes the life cover tax-free. The maturity benefit is also tax-free if your policy was initiated before February 1, 2021. Any ULIP bought on or after this date requires you to pay a capital gains tax on the ULIP plan returns if your yearly premium is over INR 2.5 lakh.
When is the right time to invest in a Child ULIP?
You can purchase the ULIP 30 days after the child is born. You have to choose the policy tenure depending on your financial goals for the child. It is vital to ensure that the child receives the ULIP plan returns when he or she needs the money for higher education. The policy term can be 15, 18, or 20 years. You can decide it as per your future objectives. You also have the freedom to select between monthly and yearly premium payment terms at your convenience. Before buying a Child ULIP, ensure to wisely plan the investment so that your son or daughter can get maximum benefits out of it.
There are different Child ULIPs available in India with varied benefits, depending on the insurer. Use a ULIP return calculator to compare the available policies and ascertain which one fits your child’s future education requirements.
