Providing a good education to children is the primary concern of parents. The high rate of inflation in the education sector adds to the concern as parents need to keep a corpus ready to ensure that their children do not miss out on a golden opportunity due to lack of funds.
Apart from education, marriage, housing, etc., there are other financial goals for which proper planning and investments are also necessary.
To achieve dreams, ensuring financial security is also important to ensure that goals are achieved even in the event of the unfortunate early death of the earning parent(s).
Here are the pros and cons of investing in Sukanya Samriddhi Yojana (SSY) and child insurance plans to secure your child’s future:
Sukanya Samriddhi Yojana
A girl’s parents or legal guardian can open a Sukanya Samriddhi Yojana account until the girl is 10 years old.
With a sovereign guarantee, SSY is completely risk-free and offers an attractive interest rate even higher than the rate offered on the Public Provident Fund (PPF).
SSY’s maturity period is 21 years and deposits must be made for 15 years. A partial withdrawal of 50% of the outstanding account balance is allowed when the girl reaches the age of 18, which can be used for education purposes.
Even though the maturity period is 21 years, an SSY account can be closed prematurely and the entire balance can be withdrawn if the beneficiary daughter marries after reaching the age of 18.
Investments in SSY accounts enjoy tax advantages of up to 80C, while interest and the amount at maturity are fully tax exempt.
SSY accounts can only be opened for girls. Thus, for boys, parents must select other avenues of investment.
With interest rates reset quarterly, the maturity amount may fall short if rates fall.
In the event of the death of a salaried parent, investments in SSY will be halted, derailing a beneficiary daughter’s goals.
Children’s insurance plans
Like SSY, children’s insurance plans also aim to meet financial requirements for higher education, marriage, etc. children.
Children’s insurance plans usually come with the Waiver of Premium (PWB) option, which ensures that a policy continues without paying premium in the event of the unfortunate death of the winning parent(s).
Such an insurance plan can be taken out for both girls and boys.
Parents have the ability to choose the maturity period and, in some cases, the repayment method and period.
Like SSY, investments in children’s insurance plans also enjoy tax advantages of up to C80 and repayments at maturity and in cash are also tax exempt.
With a lower bonus rate, parents have to opt for a higher sum assured (SA) to meet the financial requirements, resulting in high premium payouts.
Which to choose?
With a sovereign guarantee, an attractive rate of return and comprehensive tax advantages, SSY is a good risk-free investment option for girls.
As investments in SSY can be derailed in the event of the unfortunate early death of the winning parent(s), insurance is also required.
However, instead of relatively expensive child insurance plans, parents can opt for cheaper term insurance plans to insure the life of the earning parent(s) and invest the remaining amount in mutual funds (MF ) or other investment options offering superior returns.