A Unit-Linked Insurance Plan (ULIP) is a unique type of insurance product that offers a dual advantage of investment as well as insurance with a single premium. A part of your premium goes into the life insurance coverage while the remaining part gets invested in your choice of funds.
There are different type of ULIP plans offered by insurance providers in the Indian market. Some popular ULIP plans include ULIPs for children, ULIPs for saving and investment, ULIPs for women, Group ULIPs, etc.
As parents, we constantly worry about providing the best resources to our children. Any parent would wish to send their child to the best possible school/college/ university for a bright future. Moreover, the instances of parents sending their children to expensive hobby classes or sports camps to hone their children’s extracurricular skills are also increasing. Thus, in an effort to provide the best for their child, parents tend to spends lakhs of rupees as tuition fees and donations. However, as your child grows, expenses are likely to increase, given the present economic conditions. For instance, according to a recent survey, it was found that the education costs are likely to increase at 15-20% on a yearly basis. Thus, a normal engineering course that might be costing up to INR. 7,00,000 today, might inflate up to INR 30,000,00 in the next 10 years. Thus, it is necessary that parents have a financial security net for fulfilling the future needs of their children. This is especially true for new parents, who might be more prone to face the brunt of inflation over time in order to provide for their child’s education, marriage, or home. Therefore, in such a scenario, it becomes important to have a competent financial plan that can take care of all these inflated expenses. This is when ULIP investment comes into the picture.
Child ULIPs are investments done with a long-term goal to save for your child’s future or for any unforeseen future financial needs. Under the provisions of a Child ULIP plan, the child gets a lump sum ‘sum assured’ in case of the unfortunate event of the death of the parent. This sum assured amount is decided at the time of buying a Child ULIP plan and is generally the multiple of 10 times the annual premium amount. A policyholder can decide to pay the premium monthly, annual or as an upfront lump sum amount.
A Child ULIP can be taken either by parents or grandparents to secure the financial future of the child.
The term for a Child ULIP is generally 10-25 years, with a lock-in period of 5 years. However, this lock-in period can vary from one insurance provider to another.
A child ULIP policy makes the payment twice:
Upon the death of the policyholder, when the sum assured is paid
Upon the maturity of the Child ULIP, when the fund value is paid
In case of the death of the parent or a critical illness that renders him/her incompetent to provide financially for the child, a ULIP plan will-
Pay the Sum Assured to the child nominee
Waiver off future premiums
Pay fund value upon maturity
Besides securing the financial future of your child, ULIP tax benefits also offer a chance for the parent to enjoy deductions on the premium paid under Section 80 C and 10 (10D) of the Income Tax Act.
Most insurance providers offer online calculators to calculate your ULIP returns. These calculations are made depending on the premium amount and tenure of the Child ULIP.
Typically, the following steps are used to operate a ULIP Calculator-
Step 1: Log-in into the free ULIP calculator online
Step 2: Enter the premium amount and the frequency of payment (monthly, quarterly, annually, lump-sum)
Step 3: Choose the tenure of your Child ULIP
Step 4: Select the funds in which you want to invest your money (debt, equity, or the combination of both)
Step 5: Enter personal details like age, gender, medical records, etc.
Step 6: Once you submit these details, the online ULIP calculator will estimate the amount on returns accumulated over time.
A. Yes, the maturity amount on your Child ULIP is tax-free.
A. Parents, grandparents as well as legal guardians of a child can buy a Child ULIP.
A. Upon the death of the policyholder, insurance companies provide a waiver on future premiums. Moreover, the child nominated by the policyholder under the Child ULIP also gets a sum assured amount.
A. No, the sum assured is exempted from tax under Section 80 C of the Income Tax Act.