Every parent dreams of giving their child a secure future. This can be through various milestones such as quality education, financial independence, or a dream wedding. However, rising inflation and unforeseen life circumstances can pose significant challenges to fulfilling these goals. This is where a child savings plan can help. These plans are designed to build a dedicated corpus for a child’s future needs. Alongside, they also provide life insurance protection to ensure that financial goals are still met in the parent’s absence.
What is a Child Savings Plan?
A child savings plan combines life insurance and investment. It helps parents to save systematically for their child’s long-term needs. The core idea is to prepare funds as needed, such as for higher education or marriage expenses. These plans span across years with customised to align them with the important milestones in a child’s life. Broadly, there are two types of child savings plans:
● A traditional child endowment plan that offers assured returns and bonuses.
● A unit-linked child plan that offers market-linked returns for higher growth potential.
Building a Disciplined Corpus
Child savings plans are based on disciplined, long-term saving through regular premium payments. Over time, they help build a substantial fund that matures when your child requires it. For example, a 15-year plan started when the child is 3 years old may mature around the time of university admission, providing much-needed financial support.
Flexibility in Planning
Flexibility is an essential feature of many child savings plans, especially unit-linked ones. Parents can increase contributions or switch investment funds as per changing financial situations. Some plans may also allow partial withdrawals in case of emergencies. This flexibility ensures that savings continue while also offering access to funds when genuinely needed.
Tax Benefits
Tax advantages are another key factor to consider. Many child savings plans offer deductions under Section 80C of the Income Tax Act. In this scenario, parents can claim up to ₹1.5 lakh annually on the premiums paid. Also, maturity benefits may be exempt from tax under Section 10(10D in some cases. By selecting a tax-efficient plan, parents can not only secure their child’s future but also optimise their savings.
Starting early is always advisable. It will allow you to contribute more over time and benefit from compounding returns. During this pursuit, a child savings plan should be considered. After all, it has the combined benefits of financial goal-based saving and life insurance protection. With time, parents can be at peace as their children receive the financial protection they need.