What is a Child Endowment Plan? Benefits & Features Explained”

An endowment plan is a kind of life insurance plan which includes a lump sum payment either on the policyholder’s death or maturity of the plan. It best suits those who are futuristic & want to look for long-term investment options & are planning for some future events, such as their retirement, their child’s marriage, etc. It is a combination of both life insurance coverage & long-term savings that offer assured returns. Under this plan, a policyholder is required to save a certain amount on a regular basis for a specified duration. If he dies, his beneficiaries will receive the entire sum assured, & if he survives, he himself will receive the survival benefits.

A Child Endowment Plan is sometimes considered the Best Child Plan for parents who are looking for a secure educational future for their children & who want to provide them with assured savings & insurance coverage. This plan enables parents to save funds to cover future expenses, such as their child’s education, marriage, or other expenses. According to this plan, the maturity benefit will be paid to the child on the occurrence of certain events & death benefits in case of the demise of the policyholder. 

Reasons to Invest in a Child Endowment Plan

Provided are the reasons to invest in a child endowment plan:

• Securing your child’s future

All parents desire to provide financial security to their children, as does a child’s endowment plan. Parents should plan this policy as soon as possible, irrespective of the changes occurring in their financial position, to provide financial security to their children.

• Providing for education costs

Due to rising educational costs & simultaneous limited budget constraints, parents should plan this policy when their children are young to get the funds accumulated till the time they reach college. 

• Supporting marriage expenses

Parents should also start to plan the wedding expenses of their children well in advance, i.e. approximately 10 years prior to accumulate enough corpus amount.

• Building a fund for entrepreneurial ventures

Parents can also plan a business for their children if they see them showing interest in entrepreneurship. To build an adequate corpus, parents should plan to save as early as possible. This will help them become financially independent, allowing them to pursue their career objectives.

• Benefiting from tax savings

The premium paid is eligible for a tax deduction for a maximum of up to INR 1.5 lakhs u/s 80C. The survival benefits are exempt from tax u/s 10(10D), subject to terms & conditions, that the premium paid is not more than 10% of the sum assured. In case of the death of the policyholder, the death benefits paid to the beneficiaries are also exempt from tax u/s 10(10D).

• Covering future financial needs

This plan also covers unforeseen expenditures that may arise in future to address the unexpected demands of your children. 

Features of Child Endowment Plan

Provided are the features of an Endowment plan for a child:

• Builds Savings Habit

This plan helps build a habit of saving for children at an early stage, which will be further used to secure their future.

• Financial Security

It is a life insurance plan that secures the future of your child in the absence of their parents. In case of the sudden demise of the policyholder, beneficiaries will receive a lump sum amount of the death benefit, which can be used to bear the child’s education.

• Premium Payment

It allows flexibility in the payment of premiums, which will help you align financial objectives with your capabilities.

• Taxation Benefits

Get taxation benefits u/s Section 80C of the Income Tax Act, 1961 on the amount of premium paid, a maximum of INR 1.5 lakhs. The death or maturity benefits received are also exempt from tax.

Benefits of a Child Endowment Plan

Provided are the benefits of a child endowment plan:

• Financial Security

This plan helps secure a safe financial future for your children by ensuring payment of a lump sum amount in case of your sudden demise. It includes a low premium cost, which covers multiple planned & unplanned expenditures to offer children a better future. 

• Taxation Benefits

The different tax benefits that can be availed are:

1. Sec 80C: 

This entitles a tax deduction on the amount of premium paid of a maximum of INR 1.5 lakhs.

2. Sec 10(10D): 

The survival benefits received by the policyholder or the death benefits received by the nominees are exempt from tax.

3. Sec 80DD:

In case of any critical illness, a tax deduction of 33% can be claimed against the expenditures incurred on the treatment of a child. Additionally, it allows a claim deduction of around 40-80% against the expenditure incurred on minor & major disabilities.

• Flexibility

This plan allows you to choose the policy duration between 12 & 25 years. Also, it offers a flexible premium payment tenure that well aligns with the financial objectives. 

Mistakes to Avoid While Choosing a Child Endowment Plan

Provided are the mistakes that should be avoided while choosing a child endowment plan:

• Not Aligning with Financial Goals:

One should choose a policy that well aligns with the financial objectives & offers enough coverage.

• Not Checking Premiums:

Choose an affordable premium amount that well aligns with your budget.

• Not Understanding the Policy Terms:

Go through the policy document carefully & read the terms & conditions to understand what is covered, what is not, features, & benefits, etc.

• Choosing the Wrong Insurer:

Conduct proper research of the different insurance service providers to select an insurer which has a strong financial background with a high claim settlement ratio, 

Conclusion

A Child Endowment Plan offers a dual benefit of life insurance & savings under a single plan. This plan helps secure your child’s financial future by achieving future financial goals. But, it may not be flexible & may not offer higher returns due to not being linked to the market. Hence, parents are advised to properly check their financial objectives, risk tolerance level, & future financial requirements of their children before investing in an endowment plan, considering it to be the best child plan.