Education is important to survive in the real world, and no parent would like to compromise with their child's education. If there are no separate savings or investments for a child's education there is only one way out that's' an education loan. Thou education insurance can be planned to secure education finance for children.
Children are not in the capacity to decide the financial structure for their education, so it comes to parents to decide on the education finances. Education loans and education insurance both come with their benefits and drawbacks.
Planning for child education is difficult and before you jump to any such hard decision, look at both sides of the coin. Let's understand the basics and differences between education loans and insurance.
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An education loan is a tool to secure your children's financial health and provide a lump sum amount to afford an education at the time of maturity. Parents keep the privilege of insurance policy while securing their child's future and ensuring the best education possible without stressing the cost of education.
Borrowed money from a bank or institution for the purpose of a higher education-related expense is an education loan. Loan funds can be used to pay off tuition fees, education materials, and living costs. Education loan is shelved for a time while students are in college known as grace "grace period"
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Education loan vs Education insurance
Expenses covered- Education loan is restricted with the use case whereas education insurance allows you to pay the tuition fee and aw well other expenses while completing the education. Money at maturity of insurance comes with the ownership but loan funds require accountability and are a matter of approval.
Burden- The premium of insurance is paid by parents whereas EMIs of loans are settled by the child after the grace period. Education loan is a burden on the child but insurance is more of a protection against future expenses.
Flexibility- Education insurance offers plenty of options, plans, the flexibility of the maturity period, and the amount of premium. Education loan needs to pay off within a certain period and there is no space to negotiate the interest rate on a loan. Education insurance also has the flexibility of withdrawal anytime in case of emergency.
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Eligibility- Insurance doesn't require much eligibility, all you need is to register with the insurance provider and pay the premium on time. But an education loan has a list of parameters that acts as a factor in deciding the loan amount such as the child's score, financial background, the significance of the degree/course, etc.
Tax benefit- Insurance offers more tax benefits to parents in comparison to education loans.
Education insurance is beneficial for someone looking to secure the future and grow the money by investing and reinvesting. An education loan could be a better choice for someone with plenty of money & not looking to grow or invest the money.
Choose smartly, and keep your children's future in mind before you decide. Discussing with children if they are young enough is also a good idea.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com