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What Is A Child Insurance Plan?

A child insurance plan is a dual-purpose product offered by life insurance companies that combines investment and insurance. It aims to provide financial security for your child’s future aspirations, such as higher education and marriage. These plans not only help you save and invest towards significant milestones in your child’s life but also offer a safety net in case of your untimely demise.

How Does a Child Insurance Plan Work?

A child insurance plan serves two primary purposes:

Meeting Future Financial Needs: It helps you accumulate a corpus to support your child’s higher education and other significant life goals.
Providing Financial Protection: In the event of your untimely demise, the plan continues to invest on your behalf, ensuring that your child’s financial goals are met.

For instance, consider a scenario where you start a child insurance plan when you are 30 years old, and your child is three. You aim to accumulate ₹40 lakhs by the time your child turns 18 by investing ₹2 lakhs annually for 15 years. Under normal circumstances, this investment could grow to approximately ₹58 lakhs at an 8% annual return or ₹41 lakhs at a 4% return. However, if you pass away in the fifth policy year, your family would receive ₹20 lakhs as a death benefit. The plan would continue to invest as planned, and upon maturity, your family could receive the intended amount based on the fund’s performance.

Is a Child Education Plan Tax-Free?

Yes, child education plans come with several tax benefits:

Deduction on Invested Amount: Investments up to ₹1.5 lakhs per year are deductible under Section 80C of the Income Tax Act.
Partial Withdrawals: After the lock-in period, partial withdrawals are tax-exempt.
Maturity Proceeds: The maturity amount is tax-exempt under Section 10(10D), provided certain conditions are met.
Death Benefit: The death benefit received by your family is also tax-exempt.