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Funding a College Education with Life Insurance

There is no question that a college education is expensive. The best way for a parent to help their child pay for college, without either the parent or child having to go deeply into debt with loans, is to start saving early. Here early means the younger the better. Thanks to compound interest, the longer the period over which you save, the more the savings grow with the compounding of interest. Also, the longer the period in which you contribute the smaller the incremental payments.

life insurance on the child gives a parent both tax sheltering and flexibility in the use of the funds. There are three parties to a life insurance contract: the insured, the owner and the beneficiary. When the child is born the parents take out a policy on the child. Assuming the child is healthy, the parents can purchase a very large policy for a relatively low premium payment. The child is the insured but the parents are the owners. The parents will probably also make themselves the beneficiaries. As payments are made cash builds up in the cash portion of the policy. Investment income generated by the cash portion of the policy further increases the balance. Under current tax laws, the investment income generated by life insurance policies is not subject to income taxes, so the cash value grows tax free. When the child is ready for college the parents can cancel the policy and withdraw the cash value or keep the policy and borrow the cash value at a low interest rate to pay for college. If the child decides not to go to college the parents, as owners of the policy, can keep the money in the policy or withdraw it and use it for something else. At some point the parents may want to transfer ownership of the policy to the child but they are not required to do so.
Life insurance on a child is not for everyone. However, it is one option that can be considered when planning for your child's college education.

Your financial plan needs to be monitored at regular intervals to make sure you are on target to meet your objectives.
The best way to plan for the children’s education is to set goals, and right asset allocation. Saving for children’s education is not just a matter of waiting for the investments to mature. One needs to spend some time to monitor the growth of money and switch to safer options.

Apart from investing in insurance polices, I would like to share some better investment options.
Always prefer safe investment with less risk factor, may be less return , but still the plan should be helpful to provide some financial security during any financial need in future.

    * Investing in mutual funds & equity market for long term, here one can expect higher return that may also include higher risk factors.
    * Child Career Plan from LIC of India, HDFC Children’s Plan, Birla Childrens Dream Plan, Aviva, Kotak, SBI & few other related plans specially designed to meet the rising educational and other needs of growing children.
    * Opening PPF & RD Accounts. Gains around 8 %, for five to fifteen years. Returns are low, but risk free
    * Small savings schemes, though the interest rates are low, they still make sense as a risk free investment.
Please keep in mind, always invest an appropriate amount systematically at regular intervals in various investment options. ″All days are not same. Save for a rainy day. When you don’t work, savings will work for you.″

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