A Child Insurance Plan helps secure the financial future of your child & meet rising educational expenses. Parents always put their efforts hard work to offer their children the best possible to fulfil their dreams. Though many of the parents are dependent on scholarships, savings, or even the Children Education Allowance, that is still not enough. But when it comes to education, parents should consider a dedicated plan that will help them meet their children’s future educational expenses.
These plans offer dual benefits of insurance & investment, providing guaranteed payouts or market-linked returns. It includes educational expenses, such as book costs, admission charges, & tuition fees, if any. It ensures access to higher education without any intervention or compromises due to financial constraints. It offers a flexible premium payout option, i.e. monthly, semi-annually, or annually, etc. or in a lump sum.
Best Ways to Save for a Child's Education
Provided are the best ways that should be used for a child’s education:
Create a Monthly Budget
Parents are advised to control unnecessary expenditures & plan their monthly budget wisely to save regularly for their child’s future. Creating a monthly budget will help parents save for their child’s education in the following ways:
- Make a list of all income & expenses every month.
- Identify the expenses which can be reduced.
- Try to increase your income through some additional freelance work, side business, or part-time jobs, etc.
Start Investing as Early as Possible
It is advised to start investing as soon as possible for your child’s education to reduce your financial burden. Parents can select government-backed educational plans such as the Sukanya Samriddhi Yojana (SSY) for their girl child. Hence, it is suggested that:
- The earlier you start saving, the more time you get to achieve growth.
- Save your funds in a dedicated savings account set up for your child.
Invest in Education-Specific Funds
Parents are advised to invest their money in education-specific funds, after consulting a financial advisor, if possible. Some of the financial plans are:
- Invest in stocks of educational companies.
- Firms providing education-related services.
- Mutual funds that can be invested in educational institutions.
Take Advantage of Tax Benefits
The expenditure related to education is eligible for tax deductions. Hence, parents are advised to:
- Avail tax benefits u/s 80C on the cost incurred on education.
- Look for tax-free bonds that can be used to fund education-related expenditures.
Buying Insurance Plans
Child Insurance plan, such as a child education plan, offers dual benefits of savings & protection. These plans help parents protect the corpus funds for their child’s education. Most of the plans offer a tax exemption u/s 80C of the Income Tax Act, 1961. Additionally, it offers the maturity proceeds exempt from tax. Parents are advised to take advantage of the following:
- Avail taxation benefits u/s 80C of the Income Tax Act, 1961.
- Purchase a child's education plan that offers the dual benefit of insurance & investments.
- Avail tax exemptions on maturity benefits received u/s 10(10D) of the Income Tax Act, 1961.
Investing in PPF
Investments made under a public provident fund offer taxation benefits with fluctuating interest rates. PPF offers a maturity period of 15 years, letting parents build corpus funds for their child’s higher education. It will include:
- Contributing regularly to PPF to avail tax deductions u/s 80C of the Income Tax Act, 1961.
- Avail tax exemptions on the maturity proceeds u/s 10(10D) of the Income Tax Act, 1961.
- Avail the 15-year tenure to further plan the future education-related expenditures.
Exchange Trading Funds (ETFs)
Exchange-traded funds (ETFs) include investments in stocks, bonds, etc., which are flexible enough to be bought & sold like any other stocks in the exchange market. These funds are highly liquid with low expense ratios. Thus, investments can be made in ETFs to meet long-term obligations, such as child education.
ETF can help parents in the following manner:
- It helps to diversify the funds with low expense ratios.
- It provides flexibility in buying & selling Exchange Traded Funds (ETFs).
- It helps make a long-term investment to meet a child’s education-related expenses.
Buying Real Estate
Real estate is one of the most stable & growth-oriented investment types when it comes to a child’s education. Additionally, the rental income from commercial properties is quite predictable & will offer a regular stream of income, though the underlying asset itself has appreciating potential with time.
The interest paid on a home loan is eligible for a tax deduction u/s 24(b) of the Income Tax Act, along with a reimbursement of the principal amount u/s 80C of the Income Tax Act, 1961. Let us see how it works:
- Parents should invest in a house property to get rental income for their child’s future education expenditures.
- Take advantage of capital appreciation on the property over a long tenure.
- Avail deduction of tax u/s 24(b) on the amount of interest paid & u/s 80C on the principal repayments.
Take Advice From an Expert Financial Planner
Parents should consult a financial advisor to help suggest a savings plan for their child’s future education. They will help them select a better blend of taxation, investment plans, or any other conditions. A financial advisor will help you in the following ways:
- Provide personalised suggestions on investment plans.
- Provide a better understanding of tax implications related to education funds.
- Design a comprehensive financial plan according to your specific needs.
Tax Advantages of a Child Education Plan
Provided are the tax advantages of a child's educational plan:
- Section 80C: The premium paid towards the child education plan is eligible for a tax deduction of up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961.
- Section 10(10D): The maturity proceeds received under this plan are exempt from tax under section 10(10D) of the Income Tax Act, 1961.
Conclusion
Child educational plans are the smartest way parents can save for their children’s brighter future. In this world filled with uncertainties, it is advised to start saving early & receive funds at each & every milestone of life, such as school, college, or any specialised course, whatever the challenges may be. With an effective & smart mindset, it becomes possible to provide the best education to your children that they deserve.