Giving your child the best security in future

The arrival of your new bundle of joy in the world brings lot of enthusiasm in life. And when it comes to give ultimate bliss, you ensure no one messes around with your child’s happiness not even the future uncertainties and problems in life. You intend to give your child the best of everything and to attain this objective, you start investing in various instruments on your child's behalf.

Well, there are many ways to secure your child’s future such as savings, bonds, stock investments or mutual funds etc. but the one thing that insurance companies have introduced to capitalize the modern day parents' attention is “Child plans”. These plans have enticed many parents to invest on behalf of their children, under the impression that their child's future is secure.

The article will inform you about child plans, how much you should invest and key points while investing in the policy

Child plans are insurance-cum-investment plans offered by insurance companies similar to ULIPs. The difference between a ULIP and a child plan is that the parent starts investing in the child plan right from the time a child is born and can withdraw the savings once the child reaches adulthood or in exceptional cases if the parent were to meet with an unfortunate event child insurance plan is able to provide a life cover for the financial needs of your children and lump-sum money is paid out to the child as well. It will continue till maturity after the death of the parent and all the future premiums will be paid out by the insurance company! This unique feature is called Waiver of Premium.

Child plans do come with inbuilt insurance component in order ensure the sum payable to the child is insured against the premature death of the earning parent. However, we suggest while planning for child's future first determine the amount of expenditure which would be incurred in future on different goals such as education, extracurricular activities, vehicle, marriage etc. Since these goals may be in distant future, one must consider the impact of inflation. Experts recommend that it is necessary to buy a life cover of minimum of 7-10 times the annual income of the earning parents. This is to ensure that in case if the earning parent meets untimely death; his/her spouse and the child are adequately provided for. So if you are relying only on the life cover provided by these plans, then remember you will always remain under insured.

A child plan runs on investment insurance principle. When you pay the premium for the plan, part of the premium amount goes towards paying for the life cover. Remaining part of the premium is invested in various instruments either debt or equities. Therefore, your investing strategy should be focused on meeting your child needs as and when required. So make sure the maturity happens in the year that your goal materializes. Besides, Child plans allow partial withdrawals; this proves useful to take care of urgent needs without disturbing the regular expenses and income matrix. The flexibility to switch investments from one fund to another lets you capitalize on the market conditions and gain/protect yourself from market volatilities.