FINANCIAL PLANNING FOR CHILDREN’S
EDUCATION
1. As parents, you
want the best education and care for your children.
2. You should
evaluate the available investment options in such a way that you understand
whether these will help you provide for your children in the most efficient
way.
3. The facility to
invest small amounts in funds, such as equity, debt or a combination of these,
over a period of time to build a corpus, is available in child education
insurance policies as well as investments such as mutual funds.
4. The difference
between the two lies in the protection that the insurance plan provides and the
premiums that have to be paid.
5. In the
unfortunate event of your demise, not only will the sum assured be paid to your
family but the premium payments will also continue for the full term.
6. For you,
therefore, the motivation to go for an insurance-linked payment may be stronger
than in a pure investment product, especially when the markets are volatile.
7. However, you will
have to consider the cost involved in the additional benefits that the
insurance product provides.
8. A portion of the
premium paid will be allocated to charges instead of being invested for
beneficiaries.
9. Moreover, the
high upfront charges on insurance products make them an expensive proposition
to exit even if the fund is performing poorly.
10. You could
replicate the same benefits at a lower cost by purchasing a term insurance for
a sum that reflects the value of all your future goals, including the
children’s education needs.
11. This must be
combined with an investment plan in mutual funds, preferably with a commitment
such as a systematic investment plan (SIP), so that the required corpus can be
built easily.
12. In the event of
your demise, the term insurance amount will be available to your family to meet
the goals, along with the mutual fund value.
13. Such a plan also
provides the flexibility to take a corrective action if the investment is not
working as expected, which would not be possible in an insurance-linked
education policy.
14. If you and your
family are able to make appropriate investment decisions and continue with
them, then you must go for the more cost-effective and flexible option of
buying a term insurance for protection of your goals and investing in mutual
funds for growth of your savings.
15. If not, you
should consider the insurance-linked education policy option, which will at
least ensure that your children’s needs are taken care of.