In recent times parents are feeling the pinch of inflation in the cost of higher education. Their apprehension is genuine as the NSSO reported that between 2008 and 2014, annual expenditure for the primary level to post graduation level education increased by 175 percent and annual expenditure for technical and professional education increased by 96 percent*.
While there is no doubt that cost of higher education is increasing year on year, there is also no doubt that quality of education is going up spurred on by intense competition among educational institutions. The faculty is top class, the amenities are better, the campus is self-sufficient, the industrial interface is more involved, exposure to international experience is increasing due to tie-ups with renowned institutions from other countries and employers are demanding graduates with better quality of education and training. This augurs well for parents as their children can secure top class education setting them up nicely for lucrative and challenging careers in their lives ahead.
Parents want to provide the best of higher education for their children despite the costs of education going up in India. How can they provide for their child’s higher education?
There are several ways in which parents can plan for funding their children’s higher education. Parents can avail education loans with benefits of special rates of interest and a generous moratorium period. Some meritorious students can get scholarships. Some parents save systematically by investing in fixed deposits and real estate. These savings often get eroded by inflation. Investing in mutual funds and stock market are also means of savings for the long term. These investments carry a risk as they are linked to stock markets which are by nature fluctuating – up or down. Although they carry risks they provide an opportunity to beat inflation as historically the stock markets offer the best returns on a long-term basis.
Mutual funds are a convenient means of saving as investment professionals invest the pool of funds collected from investors in stock markets to get good returns for the investor. In a similar manner, there is another investment opportunity for parents in the form of life insurance where parents can buy child insurance plans to save systematically for their child’s future in addition to protecting the family from threat to life insured. Within life insurance, there is an opportunity to save for the medium long term with Unit-Linked Insurance Plans (ULIPs). Besides offering good returns ULIPs build upon the ‘propensity to save’ attitude regularly. ULIPs are also life insurance products protecting the family from any life threat to the insured parents.
ULIPs have two components – a life insurance component and an investment component. Out of the premium paid on the ULIP policy, a portion is used for providing a life insurance cover and the balance is used for investing in equity and debt instruments. The pool formed from the premiums collected from all policy holders is invested in equity and debt instruments by qualified and expert investment managers belonging to the life insurance company who use their experience to generate good returns for the policy holder. ULIPs offer the policy holder choice of investment plans based on his or her risk profile and investment objectives. Investing in ULIPs is like investing in mutual funds with the added benefit of life insurance cover. Additionally, to make it a foolproof investment plan, in case of any eventuality, ULIPs offer the flexibility of additional protection through riders. Various riders, such as the WOP (Waiver of Premium Rider), Accidental Death Benefit Rider, et al can help you protect the financial future of your loved ones at a very minimal cost. In case your goal is to save for your Child’s education, it is highly recommended that a ULIP with WOP rider should be your first investment choice.
Since planning for a child’s higher education is a long-term goal investing in ULIPs is an excellent avenue to support other savings. Along with other savings, ULIPs provide parents with a great option to beat inflation.
We at Bajaj Allianz Life would recommend that parents should start investing in ULIPs as soon as the child is born. The longer parents are invested in ULIPs better are the chances of higher returns and therefore better chances of providing quality higher education for their children.