Welcoming a new family member is a matter of immense joy but at the same time it brings in a whole new world of responsibilities for parents. In these times of high inflation and limited income options available, planning the financial future becomes very important especially when high expenses like child’s education and marriage is to be met down the line in future.
Apart from other investment options like stock markets, mutual funds, fixed deposits, government bonds and other saving schemes like National Savings Certificate, Sukanya Samriddhi yojana, Public provident fund and others available in which one can invest as per his risk appetite and budget, one should always consider children insurance plans for securing the financial future of the kids.
In this article we will explain a few points to be heeded while opting of children insurance plans and emphasize on a few aspects that why one should consider purchasing the same.
Five points to be kept in mind while buying a child insurance plan:
- Starting early will give you the benefit to build a larger corpus and get the maturity proceeds at the time when the child needs it most like education or marriage. It is better to start such a policy when the child attains age 1 than at 8 or 10 because the former case will let build a higher corpus with time benefits of investment and also get the maturity proceeds when child attains age 18 or 21.
- Fixing the sum insured and maturity amount properly will help a lot to the child meeting his future expenses. Sum insured is the amount which will be paid on the policyholder’s demise, the maturity amount must be fixed after taking consideration the future education costs, inflation and interest rates.
- Choosing the maturity date as per the requirement of funds is important. The date must be chosen as few months prior to say admission of your child in graduate collage or the marriage age of your kid. This should be calculated at the time of taking the policy and opted such that you should not be short of funds when you need it.
- No matter whether opt it from a Public or private sector insurer. There are many plans available in the market both from public and private sector insurers. Some people get more trust while purchasing insurance from PSU while others opt private players in search of prompt service and modern technology. Before choosing an insurer, one should look for better customer service, higher claim settlement ratio, solvency of the insurer etc. Needless to mention the policyholder should take time and properly read the policy terms and conditions to ensure there is no doubt left in any corner of his mind.
- Select the pay out as per requirement. You can opt for a lump sum payment which the child may receive on maturity. On the contrary, there is an option of instalment pay out where the child can receive the maturity benefit annually, and spend the proceeds as per their requirement like paying collage fees, starting up a business etc.
Five points why one should seriously consider buying a child insurance plan:
- Some of the investment options mentioned in the opening paragraph of the article may give you handsome returns and flexibility but the insurance element which comes with the life insurance children plan is one thing one cannot miss and acts as a sort of protective umbrella for the child. Once someone buys a child plan, he is assured that the insurance plan will pay on maturity whether the parent lives or not at that time. In addition to the same there is a feature of waiver of premium if the parent dies during the policy term, thus the family is not under the burden of keep the premium payment continued in such unfortunate cases.
- Taking a child plan is best for disciplined investing and building a corpus for the future expense of child. Most insurers offer monthly, quarterly, half yearly and annual mode of premium payment. If a partial withdrawal clause is added it may allow policyholder to partially withdraw funds in case of financial need, the plan may also offer the option of partial liquidity. Another point to be noted is that secured loans are easily available against child insurance plans.
- A child insurance plan may be opted in endowment or ULIP form. Thus, for a bit aggressive investor a way of benefiting from a stock market rally is there by opting for a ULIP child plan. Choice of funds is a great feature available in which insured can choose in which fund he would like to invest his money as per his return targets and risk profile like equity, debt, hybrid and money market. Some products may offer dynamic fund allocations and systematic transfer of funds.
- Additional coverages may be incorporated with the child plan whether traditional or ULIP, as per needs of the policyholder which will enhance the protection under the base plan. Some of these may be critical illness rider and accidental death and disability benefit rider. Other investment options will surely lack the insurance coverage part which is quite essential and cannot be neglected.
- Premium paid under the child insurance plan is eligible for income tax deduction upto Rs 1.5 lakh under section 80C of the income tax act. Also, the death or maturity benefit available under the child insurance plan is completely tax free.
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