The education costs in India are swelling at an above-ordinary rate. Parents these days are finding it hard to meet the fee structure and other expenses associated with education, be it primary, secondary or higher education.
Just to give you an example- The class of 2018 of IIM-Ahmedabad is required to pay a total of Rs 21 lakhs for the two-year MBA course. This fee is 400 percent higher than what it was in the year 2007. On the off chance that fees for MBA course keep on increasing by an average 20 percent every year, it will generally cost Rs 95 lakhs by the year 2025.
Considering the education inflation rate of 10 percent, a four-year engineering course that costs Rs 8-10 lakhs today is probably going to set you back by Rs 17-20 lakhs in next eight years. By 2030, the same course would cost more than Rs 30 lakhs. And not to forget the additional cost for coaching institutes for medical and engineering courses, which charge between Rs 80,000-1 lakh a year (for entrance exam preparation).
The Solution?
To fund your child’s education, the first thought that can pop into your mind is- ‘going for an education loan’. If you feel that education loan can help you take care of the higher education costs of your child, think again. You should depend on these loans only to bridge the gap between your savings and the actual requirement.
When saving for your child’s education, you need a robust plan. What if something happens to you? The entire financial plan can crash. The only way to guard against this is by taking a plan that offers investment as well as insurance feature.
So, if your child is still small and has a few years before funds will be needed for him/her, one solution to the problem of rising education costs is investing in child investment plans (ULIPs= investment + Insurance vehicles).
If you have this question, “why should I buy ULIP plan?”, here’s your answer:
- It is a market-linked plan: Offers good returns over the long run
In ULIPs, the returns are linked to the stock market, which can make sense especially when your child needs are at least ten years away (as equities can give you good returns over long-term). You could choose to stay invested in a mixture of equity, debt and balanced fund and even switch between them if you feel that the portfolio is not giving you the desired results.
- Allows partial withdrawals for specific needs of your child
Child investment plans (ULIPs) help you save regularly for your child’s future with an assurance that your kids’ financial needs would be taken care of- be it higher education, starting a business or marriage.
Additionally, these plans allow partial withdrawals for specific needs of your child, like nurturing his talents, tuition fees and so on. Thus, the ability to receive a fixed amount at different points of time makes it easy to map and utilise the money as per your child’s educational need.
The uniqueness of ULIPS:
In the event of the parent’s demise, these plans ensure that the sum is given to the child at the desired age. Furthermore, in the absence of the parent, the insurance company starts funding the policy and therefore the saving plan for your child doesn’t get derailed.
This is possible because of the presence of ‘waiver of premium’ (funding of premium) feature in most child investment plans. While choosing such plans, make sure there is a waiver of premium feature in it. This feature makes the child investment plans unique because:
- The insurers pay the sum assured to the nominee immediately after the demise of the policyholder.
- Also, the policy does not terminate after this payment (as is the case with other insurance plans).
Instead, the insurance company starts funding the premiums on behalf of the policyholder, and the amount keeps growing, which is given to the nominee once the policy matures. If the insured (you) survives the policy term, he will receive the fund value.
Conclusion:
Child investment plans work best if taken early in life-at the birth of the child or when the child is in primary school. This will give the investment enough time to grow.
Thus, it is imperative for you to start planning for your child’s education at an early stage. Child investment plans will ensure that your child gets the desired amount at the desired age. Also, the insurance element in these plans is what differentiates them from other investment avenues.
