Imagine standing in the living room, watching their kid play in the living room with plastic blocks. As the child laughs while stacking plastic blocks into towers, you wonder what the future will look like for them. What will they grow up to be?
As parents, we would want the best for our child. We dream of letting them attend renowned academic institutions and do what they love, be it music or sports, and watch them walk the graduation podium on their special day. But when it comes to real life, the dreams come with a price. School fees, books, and uniforms can be pricey and seem to increase every year.
With a little planning, you can ensure that your child has a reliable financial backup that they can rely on and be free from the stress of potentially missing out on a great career opportunity simply because they cannot afford it at the time.
Two financial tools that can help you make this possible are a child insurance plan and a children education allowance.
Education Cost Trends Before Discussing Solutions
As much as parents want to give the best for their children, the costs of education tend to rise consistently, faster than inflation.
The cost of primary, secondary, and tertiary education has always been rising faster over time. What seems to be an affordable fee for a degree today would have inflated significantly by the time the toddler turns eighteen and is ready to gain admission into college.
Apart from the basic fees that come with education, there are also additional costs that add up to a significant amount, including:
- School Fees and Bus Hire
- School Books
- Computers and Technology
- Coaching Classes, Equipment, or Lessons
- Hostel Fees for Higher Studies
It is difficult to rely on the salary to pay for all these additional costs. A child education fund that helps provide a financial backup for these expenses plays a significant role in ensuring that the child is provided with the best possible education without putting too much of a strain on the parents.
What is a child insurance plan?
- A child insurance plan is a life insurance plan whose objective is to secure the financial future of a child.
- A child insurance plan, although it may sound like it is a plan taken by the child, it is usually taken by the parent as the life insured and the child as the beneficiary.
- As a life insurance plan, a child insurance plan is meant to provide a financial backup to the child should anything happen to the parent.
- A child insurance plan typically works by involving a regular premium payment plan, which is paid for a certain number of years.
These plans usually have a maturity benefit that is paid at certain stages in the child’s life such as when they turn 18 years old or are about to join college.
Child insurance plans usually have a rider that allows them to discontinue the premium payments in case of a disability or death of the parent.
This way, the child can still enjoy the benefits that come with the insurance plan at certain ages or at maturity.
Important Things to Know About Child Plans
Not all child plans are the same, so it is always a good idea to know exactly what you are getting before buying one. Here are some of the most important features to look out for in a child plan:
- Waiver of Premium: This provision in a child plan states that in the case of the death or total disability of the parent, the plan’s premium payments are waived. This means that the child continues to enjoy the benefits of the plan.
- Lump Sum or Income: One of the best things about investing in a child plan is that you have the option to get a lump sum payment or an income for a certain number of years, depending on the plan. Some plans, for instance, have a rider that provides the necessary funds to provide for the annual fees of the child, depending on the package selected.
- Traditional or Unit Linked: Child insurance plans can either be traditional or unit-linked. Traditional plans offer a guaranteed income, whereas, with unit-linked plans, you have the option of choosing how the premium payments are invested.
- Riders: With an additional premium, you can customize the plan to your preference by adding optional riders like accidental disability, critical illness, and more.
Note: The features and benefits of the plans may vary depending on the insurer.
What is a Children Education Allowance?
While the child insurance plan discussed above is a personal plan that you buy from a private insurer, a children education allowance is different.
The children education allowance is an allowance that is given to working parents as part of the salary package. This allowance aims to help the parent with some of the expenses incurred in the course of providing education for their child.
Why You Should Know About Education Allowances
Unlike child insurance plans, education allowances help to relieve the parent from immediate expenses that come with the education of the child. Some of these expenses include the school fees and other regular expenses that come with attending school.
An education allowance also helps to ease budgeting since it is added as a separate component in the salary package. It is important to note that the children education allowance is dependent on the employer’s guidelines.
It is a good idea to always check with your company’s HR department to determine if you are eligible for this allowance and what documents need to be submitted in order to get it.
Summary
When it comes to financial planning, there is no single tool that can help you achieve all your financial goals. A combination of the discussed financial tools can help you achieve your goals.
While a children education allowance is helpful for regular expenses that come with the education of the child, a child insurance plan helps to secure the future of the child so that they can realize their dreams and have a financially stable life.
Knowing how these financial tools work and investing in a combination of the two can help you create a stable financial future for your child.
