Amar Shinde (19) wishes to pursue a management degree. A bright child, he has done well in academics so far but his dream to get a MBA degree may never be fulfilled. Reason? A degree from a reputed institute would cost at least Rs 10 lakh and his parents never took a child insurance plan for this expense.
This is a common scenario in India. Even today, parents have not understood the importance of financial planning to safeguard the basic needs of their children. What costs Rs 10 lakhs today will cost Rs 20 lakhs a few years down the line.
Raising a child has become difficult now, thanks to mounting costs of education. Insurance companies have introduced various child insurance plans and it is imperative that parents understand the benefits of such plans to safeguard their child’s future.
Child plans are basically designed to meet 3 basic milestones in the life span of a child. They are:
- Establishment of a family in terms of business, job, house and other relevant issues
Parents are advised to invest in child plans to safeguard these objectives in the event of any emergency or death of the earning member of the family. The risk cover or insured amount takes care of the child’s needs.
There are two types of child plans:
- Traditional or endowment child plan
- Unit plans that are linked to capital markets and are very flexible
An adviser suggests an appropriate child plan to parents after discussing their risk appetite, income, age and terms of investment. Riders available in addition to death are:
- Critical illness
- Accidental death rider
Availing riders is not mandatory. Before opting for a specific child plan, one must understand:
- The brand or insurance company with its credentials
- Its past performance in terms of claim settlement and returns
- Applicable charges and their impact on fund performance
- Funds manager performance and consistency
- Customer care and services
Most child plans offer premium waiver option that enables nominee to stay invested in the plan. After the death of the parent, premium payment gets waived off and insurance company pays the same for the child on behalf of the deceased parent. This guarantees that meritorious children like Amar do not lose out on opportunities of a lifetime.