help create a corpus for crucial stages in the child’s life
Every parent has a dream about their child's future and would leave nothing to chance. Hence, from the time a child is born, most parents start planning for the child’s future. A substantial amount of money is required for every major milestone in a child’s life, such as his or her graduation from school, college, university, marriage and so on. With education and other costs getting really high, this kind of planning and investment for various purposes has become very important.
Today, there are many options available that allow you to invest regular amounts in your child’s name till they attain a particular age. They are collectively known as Child Insurance Plans. Investments in these can be planned well in advance to avoid the financial insecurity when you really need the money. The only requirement is that you must be clear in your mind about your financial requirement, the time frame when you will need this money, the expected returns, the tax implications and so on. You must then make regular and systematic contribution to the plan.
However, you may be confused with the myriad options available in the market in terms of the various policies offered by different insurance companies. You must compare and study the various features offered by these plans before you decide on which one to buy. For example, most plans come with add-on features like Waiver of Premium benefit in case of death of the parent. Also, these plans come in two variants:
This is a feature included with most policies, either as part of the plan or as a rider. In case the parent(s) don’t survive till the Term of the policy, future premiums will be waived off. The Policy will however remain in force and the child will get all the benefits.
In addition to the Maturity amount, many child plans also include a percentage of the sum assured. This amount is paid to the Insured at the time of maturity of the policy and is given for the number of years the premium was paid. You must consider how much this amount is before you go for the policy.
The insurance company deduces a particular amount from the premium before investing it in various funds. The amount deducted varies as per the type of fund, the maximum being for equity fund, minimum for debt funds. Also, it reduces with the Risk involved. They are generally high for ULIPs and negligible in traditional plans.
Besides guaranteed benefits, companies also pay a loyalty amount from time to time to policy holders. It is proportional to the number of years the premium was paid and depends on the performance of the company in a particular year.
There are various Riders available with each insurance policy, the most prominent one being the waiver of premium and payer benefit when the parent dies. The other riders that may be there are for dreaded diseases and Accident benefits. These riders may be optional, inbuilt or not available at all with the policy. You must study the riders, and then select the riders as well as the policy carefully.