The soaring cost of education is a major cause for concern among parents. It is impossible to predict what school tuition fees and college admission fees will be like 15 to 20 years from now. There are many ways to work towards building a corpus for your child’s education, and the child ULIP is a good option.
Benefits of Child ULIPs
A child ULIP offers three primary benefits that make it particularly suited to building funds for your child’s future education needs.
1.Immediate Death Benefit of Parent – When the policyholder parent dies, the family receives a lump sum representing the death benefit of the policy. As with other life insurance plans, this payout supports the family following the death of an income-earning member.
2.Waiver of Future Premiums – Other life insurance plans cease to exist once the insurance company pays out the death benefit (with or without maturity benefits). But the child ULIP does not end here. The insurer waives all future premiums from this point onwards but continues to invest the policy’s fund value on behalf of the policyholder. Thus, the money continues to build throughout the term of the policy.
3. Maturity Benefit as Desired – An ordinary ULIP pays out the death benefit and the maturity benefit when the policyholder dies. In the case of a child ULIP, the maturity benefit usually pays out at regular intervals as per the policyholder’s specifications at various stages of the child’s educational life. For instance, there could be a part payout when the child is seeking admission into college, and later, when she joins a professional course.
Benefits of Child ULIPs vis-à-vis
Term Plans
A traditional term plan may be considerably cheaper than a child ULIP is, but it offers only a single payout on the death of the policyholder. While the death benefit may be more than adequate, inflation alone could cause a family to run through the amount quickly.
A child ULIP features two payouts at different points of time, a death benefit following the policyholder’s demise and a maturity benefit to the child at one or various points in the future. Since the insurer waives premiums following the policyholder’s death, the fund value continues to grow throughout the policy term at no extra cost to the family. This can work out to a considerable sum over the long-term even though no further premiums have been paid.
Benefits of Child ULIPs vis-à-vis
Mutual Funds
Mutual funds, with their high returns, present a wonderful way to make your money grow. Investors can easily save for their children’s education through systematic mutual fund investments. But there is a caveat—what if the investor parent dies early? How then would the family save for the child’s future education needs?
The child ULIP takes into consideration that a parent could die young, and so, has worked in an important feature—the above-mentioned waiver of future premiums. Thus, even though no more money goes into the policy, the insurer continues to invest the investible amount, which could eventually result in a substantial payout.
Why Child ULIPs Work
It all comes down to the premium waiver feature. The death of a parent does not imply the end of fund building. The child ULIP continues to accumulate funds and provides maturity benefits to the child over the long term just when she needs it the most.