Child plans: The right choice for securing your child’s financial future

When opting for ULIP-based child plans, parents must understand the associated risks. Parents should go for pure-equity plans if they have more than ten years in hand as equities offer better returns over the long term. If not, it’s advisable to go with a plan that has a mix of equity and debt or allows switching between the two categories of funds as the maturity date approaches. Endowment-based child plans are suitable for parents who want to invest for the long-term but have a relatively low risk-appetite and are looking for guaranteed returns.

Child insurance plans require the policyholder to pay premiums for a specified period and once the policy matures, the benefit amount can be used to pay for the child’s education, marriage and other financial needs. These plans act as a safety net for the child in the event of the death of the parent.

There are, however, a few key things that one must consider while buying a child insurance plan. Parents must take inflation into account while deciding the sum assured. This is important because what costs a lakh today may cost way more 15 years from now, given the inflation.

For example, estimates show annual education inflation to be close to 8-9 percent but even a number as conservative as 7 percent can balloon significantly over the course of 10-15 years. In line with this, it’s safe to say that what costs Rs 12 lakh today would cost over Rs 23.5 lakh after 10 years.

Further, parents should also take into account the tenure of the policy and go for one with a suitable maturity date. For example, if the child is 10 years old, the parent will need a policy with tenure of at least 10-12 years so that the policy matures and provisions for the required money at a time when the child’s financial goals are nearing.

Additionally, child insurance plans come with a host of useful riders such as a premium waiver, accidental death benefit, critical illness rider, income-benefit rider, and hospital cash and so on. Adding a rider requires the policyholder to pay marginally more than the base premium so it’s important to analyze one’s needs and what the plan offers before opting for any of the riders.

And finally, child insurance plans typically come with two pay-out options – lump sum and regular. The lump-sum option pays the complete maturity amount at one go which can be used to address the various needs that come up in the child’s life whereas the regular payouts option pays from the maturity corpus at different intervals to meet the needs as and when they arise. It’s advisable to pick the option which will benefit the child in the long-term.

With life being so uncertain, parents would want to ensure that their child is covered financially and does not have to compromise on fundamental needs such as quality education. Child insurance plans act as a safety net and can also be used as collateral for education loans and other child-related financial needs. These plans are a great saving tool and can help parents save for the long term without sacrificing their current or future needs.