Children are the most precious gifts for parents. Giving them the best education and securing their financial future are thus essential priorities in their parents’ lives. There are multiple investment plans to protect your child’s future financially.
But you can also consider buying an investment plus insurance plan that serves the dual purpose of wealth creation and securing your child’s life after you. Let’s find out how a pure investment plan differs from an investment + insurance plan and the better choice for your child’s successful future.
Investment vs Investment + Insurance
Investment is a financial planning tool that involves investing money in different market instruments to enhance wealth. Investment + insurance refers to an insurance product that offers investment and insurance under a single plan. This offers capital appreciation along with providing you with a life cover.
Investment Plans for Your Child
Investing in a child’s education plan from an early age is wise, considering the rising costs of education and other essential needs. You can consider the following investment plans to ensure your child gets a quality education and good life when they grow up:
- Equity-Linked Savings Scheme (ELSS)
- Mutual funds
- Sukanya Samridhi Yojana (SSY)
- Public Provident Fund (PPF)
- Gold Exchange-Traded Funds (ETFs)
- Recurring deposits
- National Savings Certificate (NSC), etc.
Investment + Insurance Plans for Your Child
Making the right investment may not be enough if you wish for the long-term security of your child. Thus, you can consider buying child education insurance and an investment plan for the financial safety of your kid in your absence. You can choose from the following child insurance plans to give your child a protective shield in the case of an unfortunate eventuality:
- Regular child premium plan
- Child endowment plan
- Child plan with a single premium
- Unit-linked insurance plan for children
Benefits of Investment and Investment + Insurance Plans
Child investment plan benefits
Child insurance plan benefits
Child investment plans are pure investment instruments with no insurance cover.
Child insurance plans are investments plus insurance instruments.
Helps in regular and disciplined savings for the child’s future goals.
Helps in regular savings and takes care of your child’s financial needs and goals even after your demise.
Investment plans such as SSY, ELSS, PPF, etc., are eligible for tax* benefits under the Income Tax* Act, 1961.
Premiums for a child insurance plan are eligible for a tax* deduction and exemptions under Section 80C and Section 10(10D) of the Income Tax* Act, 1961.
Investment Plan vs Investment + Insurance Plan
Mutual funds and ULIPs are two preferred financial tools. To better understand the difference between insurance and insurance and investment plans, let’s take ULIPs and mutual funds as examples.
- Cost-effectiveness: ULIP plans involve mortality and fund management charges. Mutual funds, on the other hand, have no mortality charges. Instead, they consist of fund management charges, transaction charges, exit loads, etc.
- Fund options: Mutual funds offer a range of fund options to investors that include equity, bonds, commodities, gold, international equities, etc. A ULIP usually does not offer many fund options and comprises equity and debt or a combination of both.
- Tax benefits: A ULIP offers more tax* benefits than mutual funds. The premiums under a ULIP are eligible for tax* deduction under Section 80C, while the maturity benefit is tax*-exempt under Section 10(10D) of the Income Tax* Act if the premium is not more than ₹2.5 lakh per annum. On the other hand, ELSS, a type of mutual fund, offers a tax* deduction of ₹1.5 lakh in a year under Section 80C of the Income Tax* Act. In contrast, all other mutual funds are taxable.
- Life insurance: Along with investment returns and tax* savings, a ULIP offers the advantages to the policyholder. Whereas mutual funds are pure investment tools that offer no insurance coverage. So, if you wish to invest in mutual funds, you have to buy a life insurance plan separately.
- Switching and rebalancing: Mutual funds involve exit load or taxes when an investor wishes to switch between funds. If you sell equity to buy debt, you will pay tax* on any capital gains along with the exit load. But ULIPs allow you to switch and rebalance your portfolio without attracting any exit load or other charges.
- Loyalty benefits: ULIPs come with loyalty benefits to the policyholders if they stay invested for long durations depending on the insurance provider. But mutual funds have no such benefit.
- Transparency: Both ULIPs and mutual funds have a sufficient degree of transparency. You can check the portfolio of your investments, Net Asset Values (NAVs), charges incurred, etc., easily and be well-informed at all times.
Child insurance and other investment options have their own advantages. Child insurance plans offer insurance coverage, more tax* benefits, easy fund switching options, and loyalty benefits. On the other hand, mutual funds and other investment options offer more fund choices, good performance, etc.
You can determine the suitable option for your child depending on your short-term and long-term needs. Child investment insurance plans ensure your child’s needs are met in your absence, while regular investment plans do not guarantee any such care.