Child Insurance Plan

help create a corpus for crucial stages in the child’s life

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Why Child Plans are Better than Mutual Funds?

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Don't you wish to give your child a bright and promising future? As a parent, each of us intend to have enough resources to provide the best of education for our children, get our princess married and fulfill other financial requirements smoothly. If you were relying only on your current or future incomes to fulfill these dreams, you need to think again!

With rising cost, it is not just the current income but well- planned investments that help you in actualizing your dreams. Looking at child insurance plans which ensure the fulfillment of your child’s dreams is certainly a wise idea.

What is a CHILD PLAN

A child plan serves as a dual purpose savings plan. It accumulates funds at a time desired by the parent—be it for education or marriage. At the same time it provides a cover on death. The plan safeguards the child against the Risk of the parent’s untimely death. It offers a lump-sum amount on the death of the policyholder, and even then the Policy does not end. The biggest advantage of this plan is that all future premiums are waived off and it is the insurance company that foots in the money on behalf of the policyholder.

While considering insurance plans, you’ll have two variations as there are two types of plans-

1.Endowment based plans

These are traditional plans where the insurance company entirely undertakes the investment decisions. Based on their performance, the Policyholder gets a bonus. Since they are debt heavy, one cannot expect extraordinary returns.

2.Unit Linked Insurance Plans (ULIPs)

These schemes take advantage of the market exposure over the long run. The investor can either invest 100% money into equity and become aggressive or contrarily invest 100% into debt and become conservative or into a combination of the two. The policyholder could choose any of the fund options and even switch between these fund options.

So,based on one’s risk appetite one needs to choose between the two. The investor could either consider the regular Premium or the single premium plan. In case of the regular premium scheme, the parent need to pay premiums till the child turns 18 and then, the Insurer makes the payments back in a phased manner.

With an array of financial instruments available in the market, the investor might be in a fix and wonder whether to invest in a child plan or others? What makes child plans a better pick - Child plans or mutual funds?

CHILD PLANS Vs MUTUAL FUNDS

CHILD INSURANCE PLANS ARE GOAL ORIENTED:-

Such plans aid the parent in securing the future financial requirement of their children like education, marriage. On maturity, a guaranteed lump sum is paid to the policyholder. In case of mutual funds, if the stock market declines in value, the net asset value of the mutual fund also goes down in tandem. In this sense, timing the mutual fund performance is next to impossible.

CHILD INSURANCE PLANS PROVIDE SECURITY:-

Child plans provide insurance cover for the child’s future in case any unfortunate event like the untimely death of the parent occurs. All the remaining premiums are then paid by the insurance company. This unique feature is called Waiver OF PREMIUM. It is surely worth it!

Whereas, no such benefit is available with the mutual fund.

TAX IMPLICATIONS:-

Child life insurance plans qualify for tax deductions. The premiums paid are allowed to be written off while calculating taxable income. This exemption is defined in Section 80 (c) of the Income Tax Act. In case of mutual funds, investors are liable to pay capital gains tax on the profit earned.

In times of double digit Inflation and skyrocketing prices, if you as a parent are not saving judiciously or starting too late, remember you are keeping your child’s future at stake. In order to take charge of their future, you need to start today. Investing wisely and staying focused could go a long way in securing your child’s life.