Social pressures and emotions sometimes take over grey matter, we plan for our younger ones birthday bash for months. The day finally arrives and then vanishes down the memory lane and takes away our savings account balance too.
I am not saying that one should not spend on such occasions, but do you realize this 50 K spent if invested in a child plan for 15 years will yield roughly Rs. 20 lacs which can be utilized for education.
A word of advice
I am sure this would have happened to you - Your friendly Life Insurance agent comes and tells you to buy a plan in the name of your child and tells you to consider it as a gift for a lifetime from your side. If not, then it is waiting to happen.
Now let us put our thinking caps on, do we really need to cover the child? In whose absence will the financial burden hit the family and your child’s education? Probably the answer to yours is already there.
The only reason why advisors tell you to take plans in the child’s name is to reduce paperwork and hassles of medical tests.
Why should I invest in a Child Plan?
You should buy because you are a responsible parent and the most logical argument would be to check the annual fee of the college that you passed out from. I've done the math.
In 2004, my MBA cost was Rs. 3.5 lacs, the same institute in 2014 charges Rs 13 lacs. Hope you got the answer.
Let us understand - what exactly is a Child Plan?
You survive the policy period - You put premiums, the plan pays a fixed maturity at a fixed age of your child in tranches or lump sum as you decide. Fixed maturity at fixed age is very crucial.
I have met lots of people who tell me that, investing money in Real Estate or Equities for children makes more sense. God Forbid – If you are trying to sell a flat that you bought for this purpose, but since the liquidity in economy 10 yrs hence is not great it won’t just sell, and at the same time if your child’s USA University call has come and your flat buyer is arranging for a loan? What would you do in such situations?
Can you tell your son or daughter to postpone their admissions into an IIT by 3-4 months just because equity market tanked in 2030 due to some terrorist attack in the United States of America.
A guarantee is a guarantee after all!
You do not survive the Policy period – Insurance cover is immediately paid to the family, future premiums are waived off, your child gets a monthly income and the plan pays a fixed maturity at a fixed age of your child in tranches or lump sum as you decide.
Things to look out for while deciding
- You should be covered not your child
- Premium Waiver has to be inbuilt in the plan, if not that additional riders are available
- Start Early, planning for a 10yrs old is futile as years left for money to grow are less. 1-2-3 years are the ideal age
- Choose a staggered maturity as lump sum money can be spent on some other less important purpose
- Please disclose all medical conditions while applying