How Child Insurance Plans Work
Dansmedia Insurance , Nothing can beat the joy of welcoming a baby into your family. There was a lot of anticipation, and even more celebration. A baby changes your world! As a parent, your dreams become bigger. Education that supports an uphill career, a luxurious marriage, the future needs of children come to the fore. In excitement, a person tends to neglect their other responsibilities such as buying a house, caring for elderly parents, planning their own medical possibilities and retirement corpus, and so on.
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Children Are Investment
Having children is both fun and an investment. Planning starts from the stage of pregnancy and so does the cost. But you can still plan for your child's future needs safely without having to worry.
A child insurance plan gives you the financial discipline to secure your children's financial future. A savings plan, offering the dual benefits of investment and insurance. The insurance component ensures that the investment corpus is built, by the policyholder or the insurance company.
Benefits of Children and Parents
Parents' biggest priority is their child's financial security. Child insurance plans are the best risk management investment tool that answers your concerns. It should be noted that child insurance plans are not only structured to protect the financial interests of children.
Child Insurance Plans Vs Other Insurance Plan Investments
Children think like parents. They protect the interests of the child, no matter what. Now your obvious question is – “How are child plans different from traditional investment options, such as stocks, mutual funds, gold, or even real estate?” What makes child plans unique is that once the insurance company makes a promise, the promise is fulfilled without compromise. The child plan offers a guarantee, which guarantees your child's financial future.
Most people don't think of a child insurance plan as a sizable investment option. You've just read about the benefits offered by child insurance plans. These three scenarios will give you a better perspective.
Scenario 1: Ramesh and Surbhi are in their late 40s and have a 15 year old son, Suraj. Ramesh works as a senior manager in a private company while Surbhi is a housewife. Ramesh has invested in a mutual fund to finance Suraj's dream of becoming an Aerospace Engineer. He also has a term insurance plan with Surbhi as the beneficiary. The couple recently took out a home loan to buy a bigger house to accommodate Ramesh's aging parents. Sadly, Ramesh suddenly dies and Surabhi is burdened with the responsibility of paying for EMI, in-laws' treatment and other living expenses. Due to a sudden loss of income and no pension, he is forced to liquidate the investment that had been set aside for Suraj's education. He used the death benefit he received from the policy to pay off his home loan. Suraj takes a part time job to support the family and forgets about his dream.
How a child plan will help: If Surabhi has invested in a child plan, it will pay for Suraj's education. He doesn't need to liquidate investments and can run the house on his dividends.
Scenario 2: Ketan and Aruna have just retired from their government jobs and are looking forward to their twilight years. Their corpus of savings, together with their pensions, is sufficient to cover their needs. When his only son quit his job and needed money to set up his own business, they gave him the entire corpus because they didn't want him to pay the huge business loan interest. The business failed and their son is now not only without a source of income, but also has debts to settle. Ketan has no choice but to mortgage their house to support Aruna and her son's family.
How the child plan will help: If Ketan took the child plan when his son was a toddler, it would have built a sizeable corpus. His son could use this for his business and even if it failed, it would not jeopardize his parents' pension guarantees.
Scenario 3: Monica, 35 is a recently divorced working mother.
Tips for Choosing a Child Plan
There are many child insurance plans on offer but the key to choosing the right one lies in identifying your destination first. Once you have the answers, it will help you choose a plan that will ensure the best future outcomes for your child.
In fact, you should ideally buy it as soon as your child is born. This will help you build a better corpus because you will be invested for a longer period of time. For example, say you want a sum assured when your daughter turns 18. If you buy the plan when he is 10, it will only pay you compound interest for 8 years. But if you buy it when he is 2 years old, you will get 16 years compounded interest.
Economic quirks and inflation can affect your financial planning. The sum insured you register should be worth a decade or two later. What sounds like a significant amount today may not even be enough to pay for essential needs then. Do your due diligence by researching the benefits of a child insurance plan and combing through the terms and conditions of the policy carefully before you sign up.
For example, make sure to use the premium option waiver if the breadwinner dies prematurely.
The main thing is
Children are a valuable proposition that requires resources to live. Children today are different from when you were a child and therefore, their needs are different. One should consider child insurance plans as important as any other investment. This is very important and requires the same commitment and financial discipline as, say, paying the equivalent monthly installments for a house or car. Raising children should be a wise decision, not just an emotional one.
As a parent, you have a responsibility to make sure your child's future goes according to plan. The completeness of the life insurance package – protection, guaranteed and structured returns – makes it the best solution.
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RM Vishakha, MD and CEO, IndiaFirst Life Insurance Company Limited, is a Chartered Accountant from the Institute of Chartered Accountants of India.
Vishakha, RM. “How Child Insurance Plans Work – Forbes Advisor INDIA.” Forbes Advisor INDIA, www.forbes.com, 22 Mar. 2022, https://www.forbes.com/advisor/in/insurance/how-child-insurance-plans-work/.