Large insurance companies offer not one, but many flavours in child insurance policies. The popularity of these policies with parents can be gauged by the sheer number of child insurance options laid out. So wide is the platter that you may find it difficult to select a policy that meets your child's needs.
Why child insurance policy?
Inflation has pushed up prices of most essential commodities many folds. The cost of education is rising at a phenomenal rate. To enroll a child for a professional degree, parents have to start saving years ahead. Further, child insurance plans help parents secure the financial future of their child. Parents seek these plans to mitigate their children's future financial strains and uncertainties. These policies not only offer protection but can also double up as investment instruments.
Some child insurance policies lure parents with more enticing benefits. In case of unfortunate death, the appointed dependents will receive death benefit of the assured sum. The policy is not terminated and benefits are given to the child on maturity. The rest of the premium payments are taken up by the insurance company itself instead of adding to financial stress of the bereaved family.
Some flavours
Some policies provide a lump sum amount when the child reaches a particular age. This money can be used in whatever way he chooses like for higher education, marriage, starting a family or setting up own business. Some insurance plans provide you with funds at fixed time intervals. This is designed to aid you meet your child's financial needs that arises at different phases of his growing years.
There has been a significant shift in the scenario of child insurance options. Traditional favorites like endowment plans or moneyback policies exist alongside, novel high-returns schemes and unit-linked insurance plans (ULIPs). Through a ULIP you undertake long-term systematic and disciplined savings towards your specific financial goals like child's education, marriage, wealth creation and protection. A combination of investment and insurance, they hold prospect of greater returns.
Choosing a plan
When selecting a suitable plan, parents must understand their specific financial needs along with the unique needs of the child. Factors like age of the child, periodic monetary requirements for marriage and education, additional protection and maturity benefits sought must be taken into account.
Here are a few tips to help you select the right policy for your child:
Pure life not advisable
Life insurance that covers pure life risk ensures that if the earning member of a family dies the family is paid the insured amount to take care of their expenses and maintain the same standard of life. Avoid buying such a cover for children because a child's death is an emotional loss and not a financial loss.
Ensure monetary goals are met
An ideal insurance plan must meet the numerous monetary goals at various junctions in your child's life. Sufficient funds should be available to cater to education, career and marriage expenses.
Ensure benefits
The policy should have critical illness, a death benefit and a premium waiver benefit in the event of unfortunate death of the insured/earning member.
Factor in inflation
Inflation can eat into your returns. The amount you may receive on maturity/bereavement may actually be peanuts at that future point in time. Factor in the forecasted inflation to arrive at the periodic monetary requirements and the risk cover.
Don't mix investment with insurance
Child insurance is a safeguard for dependents in the event of unfortunate bereavement of parents. Mixing your insurance requirements with your investment objectives may not always be meaningful.
