For many parents, it is quite challenging to raise a child with increasing inflation. Nowadays, both parents work to be able to meet the ever-increasing cost of living and child expenses in India.
Adding to it is the soaring cost of education due to the increasing demand as a result of the population explosion. Especially, the mercilessly-increasing cost of higher education in our country and abroad. the annual education inflation in our country is about 10-12 percent annually.
Taking into consideration the fee model of higher education, and primary business schools in India as well as abroad, a lot of parents consult their financial advisors and explore different savings and investment instruments to ensure financial soundness and ability to meet the future cost of education.
So, where do you start and what will be the best investment plan for child? As parents, you can start making projections as per your child's age, rate of inflation and current cost of education. You can start a fund in your child's name and start making contributions towards that ballpark figure that you want to reach. You can invest in child education or child insurance plan to keep your FDs and other investments safe.
This specific fund can be a child insurance plan that offers several advantages to finance your child's future over other forms of traditional investments. Child insurance plans offer death benefit cover in which the insurer pays off for the child maintenance in case of the death of the policyholder. In addition to this, some plans continue the child insurance coverage and waiver off the future premiums in case of such events. The corpus grows and is payable to the child at the time of maturity.
Some insurance providers offer child plans with multiple payout benefits i.e. paying a certain amount at a specific interval that can be used by the insured child to fund the important milestones in his life. On survival of the policy period, the insurance company pays the sum assured to the insured as per the policy term and conditions. Once you know these things you can easily compare the features of different child insurance plans based on the following parameters:
It is important to know that the child insurance plans can be ULIP based or Endowment based. if you invest in ULIP based child insurance scheme then you can select from equity, debt, hybrid or equity, as the money is invested in stocks, slightly risky but offers higher returns in comparison to the endowment based child policies. You can choose a Systematic Transfer Plan or Dynamic Fund Allocation.
The premium received in endowment based child plans is directed towards debt instruments and the insurer pays as per the profit earned. Therefore, make sure that you select the child plan as per your risk capacity.
While comparing child plans make sure that you consider the premium payment option that is provided by the insurer. In some plans, the premium has to be paid in lump sum at the time of policy inception. And some plans offer the option to pay it frequently on a regular basis for a limited period. There are premium payment options such as monthly, quarterly, yearly and half-yearly. The amount of premium will vary depending on the selected sum assured if it is a traditional child plan. So, compare the plans based on the premium payment option and the one that would work for you.
The sum assured amount is paid by the insurer in case of the demise of insured person. Let's say you are purchasing lic policy for child then it is suggested that you choose a sum insured amount that is 10 times more than your existing gross income.
Child insurance plans are mostly designed for children between the age group of 18 to 21 years. You can compare and select a plan that offers coverage for the stipulated age frame that you are looking at. If your child is not even one year old then you can buy a plan that offers coverage from childbirth till the child reaches a certain age. However, keep in mind that the policyholder should not be more than 70 years at the time of maturity and if its the case make sure that you check with your insurer.
The maturity amount should be chosen with an eye on the future. Assuming your child is 8 years old, and his policy will get matured in 10 years, then you should take into consideration factors such as inflation and interest rates. It is important to consider these factors, to ensure that the sum doesn't fall short to meet your future requirements. And refrain from going for a single premium plan as it may not provide appropriate maturity benefits, you can check the policy wordings and compare it with other plans.
You can select a child life insurance policy based on the payout options -yearly installments or a lump sum, whatever works for you. It will help in meeting future expenses such as the cost of higher education, marriage, starting own business, etc.
It is one of the most important factors on which you can base your comparison. There are specific riders of benefits that are available to enhance your life insurance policy. Let's say you are buying a lic policy for child then you can compare it with other plans and see for the riders benefits like waiver of premium, accidental death, critical illness cover, accidental death, and disability cover. Check if the waiver of premium is offered in the basic plan or you have to buy it as an add-on. So, the critical illness rider will cover predefined critical illnesses, whereas the accidental death and disability riders will provide an additional sum assured in the event of an unfortunate accident causing death and disability of the policyholder.
This is one of the most important features of a child's plan. If you have the option always opt for a premium waiver benefit that is provided in case of the death of the policyholder during the policy term. the insured child does not have to pay the premium for the rest of the term. And you go for a plan with a premium waiver benefit, your beneficiary child gets the maturity amount in case of your death. You can select a plan that offers a premium waiver option in the basic plan or you can opt for a rider benefit to enhance the coverage benefits.
Compare and check if the plan that you are selecting allows partial withdrawals clause in case of a financial emergency. You can always go for a plan that offers the option of partial liquidity.
In a Nutshell
Once you are aware of the different features of a child education plan you can compare them on the basis of the above-mentioned factors. This will help you select the most suitable plan that will help you secure your child's future without any financial worries.