That our life is full of uncertainties is given. At every step in our lives we face risks —  be it the fear of losing our job, failing health, failure to arrange funds at crucial junctures or untimely demise. All these can exert untold financial and mental strain on our family. Therefore we all want to secure the future of our loved ones, especially our children.

Every Indian parent wants to give his/her child the best in terms of education and upbringing. No effort is spared in this regard. However, with the ever rising cost of education, the dream of sending your child to the premier institutes in India or abroad could go awry if you have not invested regularly and systematically over a 10-15 years horizon. The importance of saving for a rainy day when it comes to the future of your child can never be overstated.

Saving strategy

I still remember the day my bundle of joy entered this world, introducing me to a series of overwhelming emotions. There was excitement as well as anticipation and somewhere a little reservation of how I would fulfil all her expectations from me as she grows up.

But I have seen many who do not save in a systematic manner or through the right instruments, to ensure they provide their child a security blank for a long term. Unlike most countries where young adults fund their own higher education and marriage, in India, it has traditionally been the parents who have supported their children. With the  rising cost of educationit is imperative to save towards the child’s key milestones to ensure a smooth sailing for your child.

Average cost of an MBA from a premier institute in India is approximately Rs 11 lakhs. However, owing to inflation (considered at 8 per cent), 15 years hence it is estimated to be over Rs 35 lakhs. To accumulate this kitty over a period of 15 years, one has to invest around Rs 8,500 per month regularly. Further, high cost may make education abroad unattainable goal for many. 

Education savings

While a good education is non-negotiable for a bright future, the fact remains that even the best marks do not always guarantee a scholarship since competition is extremely fierce. Therefore it is absolutely critical for parents to plan proactively, so that resources are available at the right time. The earlier one starts, the better, since their investments can grow over a period of time.

While research has repeatedly proven that child’s education is a top priority for parents, it has also revealed that this behaviour is not reflected in his financial planning. There has been no distinction between family savings and savings towards the child’s future needs. The danger however lies in the false sense of security it breeds, of being prepared to support your child’s education. Contrary to belief, the money could be used for any sudden emergency or for other more immediate needs in the future.

Note the following two principles for education:

*Investing appropriate amounts systematically and at regular intervals
*Providing for a financial security blanket to cover any eventuality

Child Plans usually fall in two categories - Unit Linked Insurance Plans (Ulips) and Money Back. In terms of tenure and withdrawal of funds, Ulip is flexible while ‘money back’ is fixed. The average term of children’s plan is 15 years and parents can buy the policy when their child is between 0-15 years. This plan ensures that money is made available at the most crucial junctures in a child's education, be it Class X, XII, graduation or PG. Most importantly, it also ensures that in the unfortunate event of the death of a parent, the child's education continues unhampered. Some insurance companies also provide  education solution planner on their websites that can help parents to decide how much they should invest in securing the future of their child.

Further, in an unfortunate event of the death of a parent, lump sum payment is made and insurance company pays all future premiums. Additionally, with income benefit rider, the child (beneficiary) would receive an annual allowance every year till maturity.

Although there is no thumb rule for investing, there are a variety of education solution plans available in the market today,. Therefore the time to start on a savings plan for your young one is now.

The writer is the Senior Vice President & Head-Products & Sales Development, ICICI Prudential Life Insurance.