help create a corpus for crucial stages in the child’s life
How will children fare in studies, what career will they choose, how much we need to save for their higher education or specialized trainings and what will happen if something happens to us and we are not able to see them through their growing stages? These thoughts accompany the joy of being parent. And this concern about our children’s futures makes child plans attractive.
With a definite corpus in mind for the child at a certain age, almost every young parent thinks of getting a child insurance plan. These allow systematic savings for children along with the benefits of insurance, a complete financial security for the child’s needs. These are investment insurance plans with many variables within to suit specific fund requirements.
Child plans are long Term plans. They need to be taken in early ages of the child, in any case before the child reaches teens, if you need to build a good corpus without getting burdened by the premiums. The Premium is used to provide insurance as well as build wealth. Premium covers the cost of payer or the child insurance as the case may be and the investment part that is used to build the amount over the time.
An ideal child plan as experts advice must have a premium Waiver benefit attached. This ensures that even if something happens to the payer, the Policy and the purpose of the policy are not in jeopardy. This, whether inbuilt or taken as a rider, increases the premium amount but also adds a safety feature. In case of untimely death of the payer during the payment term, the premiums are paid by the insurance company and the child gets the due amount at the policy maturity. Further due the payer benefit the nominee also gets a sum Assured for the payer insurance.
Depending upon individual requirements, life cover can be increased by taking Riders like term benefit rider, accidental Death Benefit rider, accidental death, disability and dismemberment rider.
There are variations in the child plans to fit different needs. The Judgment at this stage has to be made keeping in mind the fact that these are long term investments, taken such that they mature at specific times. While traditional plans offer the security, ULIPS have the flexibility.
Money back plan offers regular paybacks of a percentage of Maturity amount at the pre identified time. Depending upon the policy, the return may be at regular intervals towards the maturity date of the policy on two to three installments. The money back may be spread over the whole policy term with fixed returns every 5 years, 3 years or as per the policy norms. This type of policy ensures that all the milestone years are covered under the same policy. Guaranteed additions, bonuses and Loyalty Additions are paid at the time when the policy ends. Premium paying term may be fixed or may have to be decided.
In an endowment policy total amount is paid in lump sum at the policy maturity along with all the guaranteed additions and maturity benefits. In this case it is important to identify the maturity amount and the time at which you wish the policy to mature. The premium paying term may be fixed or may have to be decided upon at the time of buying the policy. The maturity date may be when the child is 18 years, 21 years or 24 years as the case may be.
Child ULIPS are unit linked investments where the growth of investments is based on the type of fund chosen and the market conditions. This makes them more prone to Risk attached with the market ups and downs. The flexibility in ULIPS is that the accumulated amount can be withdrawn as and when the need arises. Experts suggest that it is better to take a plan that ensures that the funds are diverted from high risk equity funds to low risk debt funds around the maturity period. If not then the investor may have to keep track and do the necessary fund switching. One also needs to keep in mind that there are a lot of charges like allocation charge and other service charges that are deducted from the premium and the remaining is invested.
Child insurance plans, whether traditional or unit linked, may give lower returns than any other type of investment but they offer the financial security to the child.