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Invest in child ULIPs for long term

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IN THIS dynamic and competitive sociocultural environment, the cost of bringing up a child especially with respect to affording quality education has posed an even greater challenge.

Child education costs have sky rocketed in recent years. Recent trend shows more parents sending their children abroad for higher studies, which results in significant expenses. This is expected to increase in future given the increase in demand and factoring in inflation.


Birthday, a perfect occasion: Most parents however, start planning for the child's future quite late. Their focus on meeting the rearing priorities usually leads to overlooking their financial planning. To reap the benefits of financial investments, it is always advisable to opt for financial planning for child's future during the child's forma tive years (three to nine years) so that 10-15 years of investment horizon is available for a bigger corpus when the child turns 16, 18 or 21, ready for under/post graduations courses. The earlier parents start planning and investing, the longer is the investment period and bigger the corpus.

In fact, child's birthday is the perfect occasion to buy a child plan as parents with young children usually invests a lot of time and money planning, but may not be necessarily be thinking about the child's secure future during this early period. This occasion, which occurs year on year is best for long term financial planning for child's secure future. Our internal research also reiterated that for parents `birthdays' are relevant to their lives and buying the product on their child's `birthday' will remind them to pay premium every year.


Child Ulip, the perfect choice: Plans designed on unit-linked platforms usually referred to as unit-linked life insurance plans (Ulips) benefit parents over long term to gain from both protective umbrella of insurance and higher return from equity.

Child Ulips are transparent and allow parents to choose the investment vehicle, according to their risk appetite. Most preferred instruments like bank fixed deposits (FDs) and post office savings earn lower returns in long-term or beat inflation rate by a margin. As a result, in couple of years, it can bring down your purchasing power and capital too. Equity, on the contrary, will beat inflation with far better margins in the long run. Moreover, investing in life insurance ensures that parents are disciplined when it comes to preparing funds for the child, which is not the case in case of other products such as FDs. Having a child plan ensures that any contingency will not derail plans for the child's future.

One might argue that child Ulips due to its linkage to equity markets and investment risk being borne by the customer may not be a good option, especially when saving for child's financial needs. The advantages of child Ulips are, however, manifold provided parents choose the right Ulip that either has an inbuilt provision for derisking or offers the flexibility to do so.

Parents should have to keep three things in mind when they invest in a child Ulip. The investment horizon should be long term to average out the market volatility and offer better return. It is important to start with higher allocation to equity during the inception of a policy and reallocate funds as one approaches milestones, that is, you should switch from equity to debt funds gradually to safeguard funds and to even lock in gains from equity market.

Thirdly, an essential feature to look out for is waiver of premium in case of unfortunate event of death or disabil ity of the proposer who is generally the parent. This feature is mostly available inbuilt in a child specific plans, but may also be offered as optional benefit.

Savings for the child is time bound.


What it means is that the funds are needed at periodic intervals to fund school, college, higher education, etc. The payout years should be timed as per the age of the child.

Happy Investing!!

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You can write back to us at PrajnaCapital [at] Gmail [dot] Com

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