is a vital necessity for parents. It secures the financial future of the child in case of an untoward incident. It also provides peace of mind to parents, knowing your child can rely on a steady income source in your absence.
As caregivers, parents have ongoing responsibilities, whether in life or beyond, and term insurance serves as a means to effectively fulfil these financial obligations.
Find out how you can use term insurance to support your child's education.
How does term insurance help in providing for your child's education?
Here are five ways a term insurance plan can benefit your children:
1. It offers a guaranteed death benefit
A term life insurance policy ensures a guaranteed death benefit in the event of an unfortunate incident occurring within the policy term, provided that all premium payments have been made punctually and the policy remains active at the time of the incident.
The predetermined payout for the child, chosen by the parent, remains unchanged and unaffected by external factors such as market fluctuations or investment performance. This fixed payout assures that the child's education aspirations are fulfilled without any uncertainty.
Moreover, term plans offer flexibility to choose the frequency of the payout, keeping in mind the diverse needs of a family. At the time of buying the policy, the parent can select from different payout options such as a lump sum payment or opt for regular instalments, either annually or monthly. They can also select the option to receive a combination of lump sum and regular income or an increasing income over time.
2. Customised protection
Each child has unique aspirations, ranging from becoming a doctor to pursuing a career in sports or any other field. The path to these goals varies and hence requires customised financial planning. A term insurance plan can empower parents to account for their child's individual financial requirements when preparing for the future.
The sum assured in term life insurance can be determined based on the child's anticipated financial needs. Parents have the flexibility to choose a sum as high as 10 to 20 times their annual income. Insurers offer tailored options to personalise the plan according to your specific needs to ensure that you provide the safety net your child requires even in your absence.
A term insurance calculator can provide you with helpful insights to select suitable coverage for your child's needs. The calculator can also be used to compare the cost-effectiveness of different plans.
3. Enhanced protection through riders
Financial crises may deplete your savings and disrupt the entire family's lifestyle and financial objectives. Any disruption to your income can impede your child's future aspirations. A term insurance plan not only provides a death benefit but also provides supplementary coverage through insurance riders.
For example, the critical illness rider offers a lump sum payout upon the diagnosis of a critical illness. This amount ensures that even if you are unable to earn money due to an illness, you and your child still have access to the necessary funds for healthcare, education and other essential needs.
Moreover, term insurance offers a permanent disability rider that exempts future premium payments if the parent (policyholder) is diagnosed with a permanent disability. This ensures the policy remains in force, safeguarding the child's financial interests at all times.
4. Maximises savings through tax benefits
The premium paid towards a term life insurance plan qualifies for tax benefits under various sections of The Income Tax Act, 1961. According to Section 80C, policyholders can avail of an annual tax deduction of up to ₹ 1.5 lakh on the premium paid. This reduces your taxable income for the year, and the savings can be allocated towards your child's well-being. These savings can be used for funding their present education or invested for their higher education expenses in the future.
Additionally, under Section 10(10D), the child receives a tax-free maturity benefit from the term plan. There are no deductions imposed on this amount, and the child can use the entire sum for their needs, as required.
5. Reasonable investment
Navigating the many roles in life can be challenging. As a parent, you are focused not only on your children but also on your own personal aspirations, such as healthcare and retirement planning. Additionally, you might be responsible for caring for your ageing parents or supporting your spouse. Hence, maintaining affordability is paramount to effectively managing all these financial responsibilities.
Term insurance emerges as a viable financial tool due to its affordability. It offers substantial sum assured amounts at relatively low premiums to ensure accessibility to a broad spectrum of individuals.
The monthly premium payments have minimal impact on your overall budget, allowing you to manage your finances efficiently. Moreover, you have the flexibility to choose the premium payment frequency, whether annual, quarterly or semi-annually, based on your preferences and financial situation.
To sum it up
A term insurance plan serves as a legacy that you leave behind for your child. It establishes the groundwork for their future and helps them through various challenges they may encounter in life. The financial support provided not only serves as a reminder to the child that the parent is always looking out for them but also instils confidence for their success in life.This proactive step can ensure that the child's needs are met, and their aspirations are supported, regardless of the parent's presence.
