Secure your child’s future and save taxes

Feb 07, 2018 | 11 months ago | Read Time: 3 minutes | By iKnowledge Team

Parents would do almost everything to secure their child’s future. But rising costs remain a concern. Inflation is taking a serious toll on everyone’s purchasing power. And the cost of everything is increasing. Even your child’s education is getting increasingly expensive. It is beyond most parents to imagine what their child’s education might cost tomorrow. Many wonder how much they need to set aside to ensure their children get the best education.

This is where child life insurance plans can step in. All major insurance companies have child plans in their portfolio. A few have excelled here, such as Aegon Life’s Rising Star Insurance Plan, which provides consistent rewards to investors.

What’s the USP?

With child plans, policyholders can make investments according to their risk appetite. If you are in your mid-30s, you can invest in plans that have a higher exposure to equities. The returns here tend to be higher compared to debt funds. But what if you are averse to taking risks? In that case, explore child insurance plans that invest only in debt.

Whatever the returns may be, child plans have an added perk—that of tax benefits.

Tax benefit on child plan insurance premiums: The premium paid for a child plan is eligible for tax deductions under Section 80C of the Income Tax Act. You can claim a deduction from your taxable income for this. The deduction is up to Rs 1.5 lakh a year.

Tax benefit on income from child plan: Any income from the plan is tax-free under Section 10 (10D).

As a parent, there are other tax benefits you can avail as well. Here is a quick checklist:

Treatment of children: The parents of children with special needs can claim tax deductions from their annual income. This is available in some cases:

  • Money spent on child’s treatment: Claim up to 33% deductions under Section 80 DDB.
  • Expenses relating to minor and major disability of child: Claim deduction up to 40% (minor disability) and 80% (major disability) of expenses under Section 80DD.

Higher education loan: Higher education expenses are shooting up by the day. It is hard to imagine how much it would all cost when your child is ready for higher studies. But you can take a loan for your child’s higher education. Under Section 80E, the interest you pay on the loan would be tax deductible.

Formation of a fund: Claim partial tax deductions from a fund you set up exclusively for your child. All you have to do is transfer the amount to a separate fund meant for your child. Do not claim any sum from it before the child is old enough to pursue higher studies.

Tuition fees: Under Section 80C, claim an annual reduction of up to Rs 1 lakh on tuition fees for your child. The exemption is available for up to two children. But to avail this benefit, the tuition fees must fall under a prescribed bracket. Higher fees may not qualify for exemptions.

The last word

Child plans are often compared to other insurance plans with a fund component. The latter pay a death benefit to the nominee if the policyholder dies. But the policy terminates immediately. A child insurance plan also offers a death benefit. But the difference is that the policy continues.

Consider the example of Aegon Life’s Rising Star Insurance Plan. This child plan offers a death benefit on the death of the policyholder. It also pays out an income benefit every year until the policy term ends. Furthermore, it waives all further premiums and pays out the fund value on maturity.

Child plans are a wonderful way to try and secure your ward’s future. The way inflation rates are going, it makes sense to plan well in advance for your kids’ education. So, if you have kids, make sure to have a child plan in your financial portfolio. It helps that these plans come with tax benefits too.  


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