ULIP for Child’s Education: Why one needs to consider it?

In India, educational expenses have increased dramatically, making it more challenging for middle-class families to set aside a significant portion of their earnings for their children’s education. That’s when you need to look at different child investment plans, and ULIPs are an excellent choice. What are they and how can they help you out are discussed in this article below

Why does one need to think about investing in ULIP?

Education costs are increasing owing to inflation. Admission fees for engineering colleges and MBA programmes are approximately 30 lakhs and 50-60 lakhs, respectively. The majority of a parent’s financial resources and salaries go towards their child’s education. If that is not enough, young people are compelled to take out educational loans. According to projections, over one million students are in debt due to student loans. Investment plans such as ULIP can take this huge burden off the parents by providing them with the dual benefit of insurance and investment. 

How Do Child Education ULIP Plans Work?

This is how a ULIP investment plan functions in general:

  • Choose one of the best Child ULIP Plans by thoroughly reading the brochure provided by the insurance company. 
  • Understand the eligibility and documents required by the insurance company. 

Eligibility: Child ULIP plans allow you to invest if you meet the minimum and maximum age requirements specified in the policy. Your age must be within the range specified by the policy’s terms and conditions at the time of maturity.

Documents: To apply for a policy, you must submit the following documents: 

  • Application for insurance
  • KYC documents include age, identity proof, and address proof.
  • Other Documents

Note: The Insurance Company may request extra information or documents based on the information given on the KYC. 

  • Choose the mutual fund from among various options provided by the insurance company.
  • The insurance company will use a portion of the premium to cover insurance costs and invest in market-linked instruments.
  • Make recurring payments to the Child Education ULIP Plan during the selected policy term. 
  • The policyholder/beneficiary receives a lump sum or deferred payout choice as a maturity benefit at the end of the insurance period.
  • The maturity benefit might be used to fund your child’s education.

How can ULIP assist parents?

Investing in your child’s future is essential for ensuring their financial security. Child ULIP investment plans provide the benefits of both insurance and investment. In case of your unfortunate demise, ULIP will provide the assured amount to your family, and at the same time, part of your money will be invested in market-link funds that can help achieve their goals. This way, you can be confident that your child’s future is protected. In ULIPs, you get the benefit of withdrawing money in partial amounts at a set schedule that can help your child secure major milestones in their life. There are ULIP investment plans that only cover your child’s schooling. The amount of investment you need to make depends on your financial situation and ambitions. To figure out the amount, you can use an investment calculator, which will help you understand the money to be set aside. 

Fund switching option: What if your fund’s investment in an area in particular fails to generate the required returns? ULIPs allow you to swap your funds from one investment to another based on the policy rules.

Premium redirection and change in the sum assured: You can adjust future premium allocations to meet your child’s changing requirements. Typically, this is permitted once each insurance year and is applicable thereafter. If you want to increase or lower the sum assured in your policy, you can do so starting with the sixth policy year, as long as all of your premiums have been paid. The maximum number of changes to the sum assured throughout a policy term is limited, though

Provides maturity benefits: ULIP investment plans provide maturity benefits; the assured sum is paid to the parent or guardian, and upon their death, it is transferred to the kid. Some investment plans in ULIP also allow waiving off future premiums and continuing to invest the already paid premium in market-linked funds. 

Allows you to build a diversified portfolio: In general, ULIPs allow you to move between debt and equity portfolios, but this is mainly dictated by your risk tolerance and market performance data. ULIPs offer the unique benefit of investing your assets in a diversified portfolio that includes equity investments in small, mid, and large-cap companies. This will allow for optimum capital appreciation, resulting in a promising future for your child.

Partial withdrawal of cash: What if you suddenly need finances for your child? ULIPs also offer the option of partial withdrawal, which allows you to withdraw a minimum and maximum amount based on the policy terms, typically beginning with the sixth policy year. On the other side, while it has been said that you can withdraw money before maturity, you should be aware that this may cause you to lose a percentage of your returns. As a policyholder, you must stick to the lock-in term, which is typically 5 years from the start date of the ULIP. After the lock-in period, you may surrender the policy, and the insurance company will deduct the stamp duty and other charges associated with maintaining and issuing it.

Auto fund rebalancing: Once you’ve specified your investing preferences, the auto fund rebalancing option ensures that your investments are unaffected by market fluctuations.

Safety switch option: You may use this to increase your returns. You can change your investments from high-risk to low-risk funds in a systematic manner, often during the policy’s final four years.

At last,

Being a parent involves shouldering a great deal of responsibility, and when it comes to their education, you only want the best. Child ULIP plans to offer a variety of benefits, including a building corpus, life insurance, death cover and others. Another advantage of ULIPs is that they also provide tax benefits. Child ULIP plans let you build a fund that will cover your child’s schooling as well as marriage. If the insured dies, the child will receive the assured sum. The amount of investment required to make for your child’s education can be decided with the help of an investment calculator.

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