Investing for children studies and children marriage is one of our biggest financial goals. It is you responsibility to give the bright future to your kid in terms of good education. Now a days for higher studies it costs around 10 Lakhs . Do you know how much you require for your child higher studies after 15 years? Its more than 30 Lakhs if we consider 7 % inflation every year. So to achieve the corpus you must need to choose proper way to save money to achieve that goals. That is the reason why many of the insurance companies are introduced children insurance plans . In this article lets see how children insurance plans works , Is it worth to buy these child plans and how to successfully achieve child future needs.
Children Insurance policy is combination of insurance plus investment policies. That means some amount of premium is used to cover parent’s life and left over amount is used for investing. Similar to ULIPs this is also insurance cum investment product.
How Children Insurance policies works
In this child plans, you need to start paying premium in fixed intervals that is monthly, quarterly, half yearly, yearly .For example if you pay 50 k per year for 15 years, at the end of maturity you will get some amount. Returns will be depends on bonus insurance company gives if you take traditional child policy . If you choose child plan in ULIP returns depends on the option you have chosen between equity and dept . To get more befits, start saving for your kid when he is quite young, so that you will have enough time to save money for your children future.
The key feature of children insurance plan is “Waive of premium” in case of parent death. That means If you took child policy for 50k per year for 15 years, in case of death of parent at 4 th year , still policy continues till maturity though you dint pay remaining premiums . Premium amount will be paid by insurance company and at the end after 15 years child will get the maturity amount which child can use for his future goals.
Drawbacks of child plans
Like ULIP , Children Insurance policy have huge charges (Allocation charges, Maintenance charges, policy administration charges etc), so premium amount left over is very less after deducting insurance coverage amount and all charges. That left over amount is used for investing. If you choose waive of premium option the charges are even more to support this feature.
Insurance coverage of parent is very less in child policies. So, life cover of parent is not at all sufficient by this policy.
So, in child policies life cover of parent is not sufficient and investment does not yield to attractive returns due to many charges. So it is not the best option to save for your child future.
What is the best way to save money for child future:
It is always recommended to keep investment and insurance as separate. That means take pure term plan for parent to cover his life incase of unfortunate death of parent, premium for term plans is very cheap. And use remaining amount in mutual funds as child future needs is long term goals and minimum period we require money is more than 10 years, always recommended to use equity diversified mutual funds. Systematically invest little amount every month in mutual funds for long term to reap benefits.
Finally, its your choice to choose term plan+ Mutual fund or take child policy alone.