Children's Endowment Policy
If you are looking for a low-risk investment to prepare for your child's future needs, you can add a children's endowment policy to your portfolio.
What is a children's endowment policy?
A child endowment plan is a type of savings plan offered by insurance companies that helps you build a financial corpus for your child's future needs. Additionally, it provides a steady insurance coverage that allows your children to cover their financial needs and be independent in your absence.
How does a child endowment policy work?
A children's endowment policy has two components – insurance and savings. When you purchase the policy, you select a fixed term and pay regular premiums to keep it active. These premiums are split into two parts. One part goes towards building a savings fund, which is paid out to you or your child when the policy matures. The other part provides life coverage, ensuring financial support for the child in the unfortunate event of your passing during the policy term.
In either case, the policy helps your child cover their expenses, pursue goals like education and helps them be financially secure.
What are the key features of a child endowment policy?
Below are some features of a children's endowment policy:
Life cover for parent
The policy provides life cover~ for the parents. In case of their unfortunate demise during the policy term, the child receives a guaranteed death benefit from the insurance company. This ensures continued financial protection for the child.
Fixed maturity benefit
At the end of the policy term, the child receives a lump sum payout whose returns are fixed at the time of purchase of the policy. This maturity benefit can be used for various needs, such as education, healthcare, housing or other important expenses.
Flexible payment options
A children's endowment policy offers flexibility in premium payments. You can choose monthly, quarterly or yearly payments, depending on what fits your budget and overall financial situation best.
What are the benefits of children’s endowment policy?
Below are some benefits associated with children's endowment policies:
Ensuring financial security for your child's future
A children's endowment policy provides a lump sum payout at the time of maturity. This money can be used to cover a number of expenses, such as higher education, marriage and others. The maturity benefit is assured and can be a foolproof way to save for your child's future needs.
Tax benefits
A child endowment plan is a type of life insurance plan, which is why it qualifies for a deduction subject to conditions prescribed under Section 80C* of the Income Tax Act, 1961. You can claim a deduction of up to ₹ 1.5 lakh per annum on the premiums paid for an endowment plan. If you are not already maximising your tax benefits under Section 80C*, adding a children's endowment policy can be a great way to lower your taxable income.
Flexible policy terms
Every child is unique. Your child's future needs will be shaped by their preferences, goals and age. That is why children's endowment policies come with flexible terms to adapt to your child's specific requirements. These plans allow you to tailor policy terms, premium amounts and payout options to ensure that the policy aligns perfectly with your child's age and future needs.
Why should you invest in a child endowment plan?
Below are a few things to consider to find the ideal timing for investing in a child endowment plan:
Securing your child's future
As a parent, securing your child's future is one of your prime responsibilities. Investing in a child endowment policy early in life can ensure financial stability for your child, regardless of any unexpected changes in your family's financial situation. Starting early allows the plan to grow over time and provides your child with financial support when it is needed most.
Providing for education costs
Your child's education expenses, such as tuition, books, and other related costs, can put a strain on your family budget. A child endowment plan can be used to cover these growing expenses. You can start the plan when your child is young and choose a term that matures around the time they enter college.
Supporting marriage expenses
An endowment plan can be an excellent way to fund your child's future wedding expenses. Ideally, you should start planning when your child is young or at least ten years before the anticipated wedding. This can offer you ample time to build the required corpus.
Building a fund for entrepreneurial ventures
If your child shows an interest in starting their own business, a children's endowment policy can help fund their entrepreneurial dreams. You can plan to start investing in an endowment plan during their early or teen years. This way, you can save up enough to support their venture when they are ready. This will not only help them be financially independent but also give your child the flexibility to pursue their career goals without constraints.
Benefiting from tax savings
Investing in a child endowment plan early can help you maximise your tax* savings. The sooner you start an endowment plan, the more time you will get to avail tax* benefits. This can help you save significantly while securing your child's future.
Covering future financial needs
Your child's financial needs may evolve as they grow. A child endowment policy can offer the flexibility to address these unforeseen expenses. You can evaluate your child's unique needs and start the plan at a suitable time to ensure you are always financially prepared.
When is the right time to invest in a child's endowment plan?
A children’s endowment policy can help parents and guardians save for a wide range of expenses, right from school fees to college tuition and even post-graduation costs. Technically, you can purchase it at any stage. However, with financial tools, starting early is always the smarter choice.
That is why many parents opt for a child endowment plan soon after their child is born. Beginning early gives you more time to save, build a sizeable fund and stay ahead of inflation. This ensures that your child’s future needs are comfortably met.
Common mistakes to avoid when choosing a children's endowment policy
Below are some common mistakes to avoid when choosing a children's endowment policy:
Don't assume it only covers educational expenses
You must understand that while an endowment plan can be used to cover your child's educational expenses, you can also use it for other goals. These can include their marriage, starting a business and more. Therefore, you must evaluate the child's overall financial needs before deciding on a suitable endowment plan.
Don't overthink the lock-in period
Some endowment plans may have a lock-in period. While this may seem restrictive at first, it can also help you save more. Lock-in periods ensure that you stay committed to your savings and do not withdraw your funds prematurely. Therefore, you may use it to your advantage by focusing on your child's long-term financial security.
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Frequently Asked Questions
Is the maturity amount guaranteed in a children’s endowment policy?
Yes, the maturity amount is guaranteed under a children’s endowment policy. These plans are designed to carry minimal to no market risk and provide assured benefits.
Can I add extra benefits or riders to a children’s endowment policy?
Yes, most insurance providers allow you to enhance your child’s endowment policy with riders for added protection. These riders come at an additional cost but strengthen the overall safety net for your child.
Can I surrender a children’s endowment policy before maturity?
One of the benefits of a children's endowment policy is that it can be surrendered before maturity. However, in such cases, you will not receive the full maturity benefit but rather a surrender value, which is usually lower than the total benefits you would have received at maturity. The surrender rules vary across insurers and depend on the policy’s specific terms and conditions. It is advisable to check these details with the insurance company before making a decision.
Who receives the maturity benefit from a children’s endowment policy?
The maturity benefit can be received either by the child or by the parent/guardian who purchased the policy on behalf of the child.
Is it possible to take a loan against a children’s endowment policy?
Yes, many insurers offer the option to avail of a loan against a children’s endowment policy. However, the actual terms and conditions of the loan depend on the insurer’s rules and the policy’s terms.
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