Why is Life Insurance Essential in Planning Your Child’s Education?

All parents desire to provide their child with the best future. Access to quality education is one of the most significant steps in that direction. Be it the best schools in India or higher education in foreign countries, it is all expensive. It is important to plan these expenses, and that is where life insurance is more than a safety net. 

Most of us consider life insurance as a way of helping a family financially when a person dies. Although that is the case but it can also be a clever financial instrument that will assist you in planning and ensuring that your child has a smooth education path. 

The Increasing Cost of Education 

The cost of education has increased tremendously in the last couple of years. A college degree, which used to cost 5 to 6 lakhs a decade ago, now costs 15 to 25 lakhs or even more. When you are thinking of studying abroad, the cost of tuition, living and travel can easily exceed 50 lakhs. 

The costs are so high that savings might not suffice. Parents should be smart and consider long-term solutions like life insurance to finance their child's education without straining financially. 

The Role of Life Insurance in Education Planning 

Life insurance is not only protection. It also assists you in developing financial discipline and saving towards future objectives. This is how it is important in education planning: 

1. Financial Protection 

Life insurance will make sure that in case something unforeseen occurs to you, your child will not be deprived of education. The policy payout can be used to pay school or college fees and other expenses. Life insurance policies, such as an ACKO policy, provide financial protection in the form of a lump sum payment in case of the unfortunate demise of the policyholder. 

2. Promotes Stable and Long-term Savings 

Other forms of life insurance, like child education plans or ULIPs (Unit Linked Insurance Plans), are a combination of savings or investments and life cover. These plans assist you in creating a special education fund by motivating you to make regular contributions over the years 

3. Tax Efficiency 

The premiums paid on life insurance are tax-deductible under Section 80C of the Income Tax Act. Adding to that, the maturity amount is normally tax-free. These savings accumulate and can be utilised to finance the academic life of your child. 

4. Premium Waiver Secures Future Contributions 

Most of the insurance policies that are child-oriented have a waiver of premium option. This implies that in case you can no longer afford the payments because of death or disability, the insurer will continue the policy on your behalf. Your child will still get the maturity amount when it is due. 

Types of Life Insurance Policies Suitable for Education Planning 

When planning the education of your child, it is important to choose the right type of life insurance. These are some of the options you can consider: 

Term Insurance 

This is an affordable life cover that offers a high sum assured at a low premium. It does not have a maturity benefit but is a good source of financial support in case the policyholder dies during the term. Term insurance is the simplest form of life insurance, and term insurance policies provide coverage for a specific period.  

Child Education Plans 

These are specially made to match the educational milestones of your child. They provide payouts at frequent intervals and are supposed to cover school or college costs. They also tend to have premium waiver provisions. 

ULIPs 

ULIPs enable you to invest in equity or debt funds and also provide life cover. They can assist in increasing your investment in the long run and building a substantial education fund. However, they are risky as returns are dependent on market performance. 

Endowment Plans 

In case you want a low-risk investment, endowment plans offer guaranteed returns and life insurance. They suit people who desire predictable and safe results of their financial objectives. 

Combining Insurance with Broader Financial Planning 

Although life insurance can be a significant part, it is even more effective when combined with other financial instruments. Mutual fund SIPs can also be considered to get market-linked returns, PPF to save safely and long-term, and fixed deposits to meet short-term requirements. 

A combination of these choices will make your education plan balanced and flexible. Review and revise your plan every few years as your child grows and your financial situation changes. 

The emergence of online insurance companies has made purchasing policies more convenient. As an example, it is easy and fast to purchase an Acko policy online. These sites provide the convenience of comparing different plans, reading the terms in a clear manner and selecting what suits your child's education objectives. Nevertheless, it is important to read the policy details and make sure that it suits your long-term needs. 

Conclusion 

The education of your child is one of the largest and most significant investments you will ever make. Preparation will keep you ready, regardless of what the future holds. An insurance creates a financial buffer, assists in saving regularly and makes sure that your child does not have his/her dreams broken-even when life takes an unforeseen twist.  

Disclaimer: This is a general informational article. While it mentions life insurance, it is not intended to promote or endorse any specific product or provider