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.

Benefits of the 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.

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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