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It’s the natural wish of every parent that their children should get the best, especially when it comes to their education and career plans. Parents, therefore, should look to save consistently for the many milestones that their children might want to cross in their lifetime. A parent is like a sculptor, who chisels and polishes the child’s interests to help him carve out a career for himself and secure his future.
Here’s where children’s future solutions and insurance comes in. Children need insurance for various reasons, mainly for education, studying abroad and marriage. Since most of us have relatively fixed sources of income, financial planning for children becomes an essential part of the family’s budget.
Whether it is an international degree or a specialised training course, most parents would not like to deny it to their children because of lack of funds.
Given the steep rise in the cost of education, which continues to climb with each passing year, saving for a child’s future is a no mean task. But save we must, to provide them with the wherewithal to stake claim to opportunities that will come their way.
Children’s insurance plans are designed to serve a variety of milestone needs and, if chosen well, are excellent long-term vehicles to manage a child’s future. These plans while inculcating a sense of discipline among the parents encourage a systematic investment over the long term. These investments have the ability to beat inflation and, thus, match the ever escalating costs of education. Finally, these solutions have options that protect these future plans in the unfortunate event of the death of the parents.
So, how should you choose an insurance plan for your child? Here are four simple tips:
● Start planning and invest in your child’s future as early as possible: Most insurance companies offer plans with maturity benefits structured to coincide with the child attaining 18 years of age, or “timed” release of payouts at critical life stages from 18 years. These plans offer a long horizon to invest, which helps you build a corpus systematically. So, quantify your goals with a certified financial planner and choose a plan that encourages such long-term investment behaviour.
● Invest in plans that offer premium waiver benefit: Most child plans offer premium waiver benefit, either as an option or as an essential feature in the main plan. Premium waiver means in the case of the death of the parent, the insurer waives off future premiums to be paid, while the insurer continues to fund the insurance policy till maturity. This makes sure that the maturity benefit that was set for a certain age remains intact as planned in addition to the death benefit paid.
● Choose a plan that offers a mix of investment options and adequate risk cover: Make sure you invest in a child plan which offers a balanced mix of growth and debt funds and a risk cover option. Empirically, equities provide the best returns over the long run. Make sure that the insurance plan you choose offers you the right mix of capital protection and growth.
Also, choose a plan that has the transfer option to make sure your gains in the investment are protected. Lastly, take adequate risk cover (at least 20 times the annual premium) to ensure that the death benefit is a substantial lump sum that can help the family in the case of the parent’s demise.
● Read the product brochure and understand the costs of the product: Insurers lay out the charges that the customer needs to pay for the policy clearly in the product brochure. Compare the products available in the market on their charges, the reputation of the insurer, repudiation rates (available on the websites), the flexibility offered and their service quality perception.
Buying a child insurance plan is a significant step in securing your child’s future. We suggest you make it a high-involvement purchase by researching the products in the market and probing the insurance agent on features, charges and past performance. Satisfy yourself with evidence on every feature of the product. Do this and your child will think of you as smart parents 20 years from now. That should make it worth your while.
The author is MD & CEO of Birla Sun Life Insurance