Choosing the Best Insurance Plan for Your Child
Parenting brings immense pleasure and joy to us. Along with this it brings a sense of responsibility, which can sometimes seem scary. The best way to avoid such scares is to plan for things which are predictable and then deal with situations for which we are not prepared.
One situation that we can always prepare ourselves for is the financial need of the children. Broadly speaking, the needs can be classified as medical, educational and marriage. Once we prioritise the needs we must allocate the required funds to meet these needs. These can be met either by way of investing in mutual funds or bank deposits in your name and making the child the nominee or directly investing in the child’s name which will yield you such sums that you need at the particular time.
While investing in children plans you must keep in mind two important factors:
1. Inflation – You require the funds at a later date and therefore must keep in mind the inflation at the time you require the money.
2. The exact time when you need the returns.
Having calculated these, you must analyse the plans that best suit your needs. There are a few plans, features of which are discussed below. You must analyse various plans and understand how they work before investing in the plan. The child investment plans help you to build a corpus that may come in handy for your children’s needs.
Different plans have different characteristics. You have to analyse the features in detail and choose the policy with care. Some features that could be considered for comparison are listed below:
Self-funding of premiums:
Some of the insurance companies pay the premium from their own funds in case the policy provider dies. This ensures that the maturity amount reaches the child as intended.
Flexibility of the plan:
Some plans allow for partial withdrawals; these plans help in case of urgent needs without disturbing the other planned expenses and income. This flexibility to switch investments from one fund to another allows you to capitalise on the market conditions. It also protects you from the volatilities of the market.
Child insurance plans are available in two flavours: traditional and unit-linked (ULIPs). While they are very different in their working and features, both help in creating the much need financial security. Unit linked plans (ULIPs) are market linked and therefore come with an inherent risk. The traditional plans suit the needs of those who are risk-averse.
Children plans have an added advantage over other plans as they give the payouts to children even if the policyholder is not around. Most of these plans are structured to give timely amounts for education needs, marriage needs and sometimes even for the business ventures as seed capital.
Many of the top insurance and banking companies offer child plans. Here is a comparison between them. Readers are wisely advised to check the policy details and invest in the one that suits their needs.
HDFC offers three children’s plans of which one is the conventional type and the other two are market linked.
HDFC Children’s Plan: This is a conventional plan which is available with profits and is designed to secure your child’s future by giving your child a guaranteed lump sum on maturity or in case of your unfortunate demise. This plan gives you the sum assured along with bonuses declared. It also provides you with flexibility vis-à-vis targeted savings and policy term.
HDFC offers two more child plans that are market linked - HDFC SL YoungStar Super II and HDFC SL YoungStar Super Premium.
The advantages of these plans are:
- Change your investment fund choices in two ways:
Switching: This allows you to move your accumulated funds anytime.
Premium Redirection: In this you can pay your future premiums into a different selection of funds.
- Tax benefits are offered under section 80C and 10(10D) of the Income Tax Act, 1961
Max Life offers Max life Shiksha plus II which includes Universal Education Support, School Fee Support, Dynamic Fund Allocation and Talent Enhancement Withdrawal as key features.
Max Life offers yet another plan, the Max Life College Plan: Key features of this plan include 120% of the sum assured along with guaranteed cash backs every year from child's age 18 to 21.
Life Insurance Corporation of India Ltd offers Jeevan Ankur which is the most suited insurance plan for you which ensures that your responsibilities are met whether you are there or not.
In the ULIP category the following child plans are available:
UTI – Children’s Career Balanced Plan and UTI Children Career Bond Plan
ICICI - Child Education Plan, ICICI Pru SmartKid Premier
Templeton B - Children's Asset Plan – Gift
Assessing your needs and future requirements, form an essential part of buying a child plan. After careful consideration you may choose to invest in any of the child plans that are available in the market. If you have risk taking abilities then ULIP plans may work best for you. If you have a conservative mind set then the tradition plans suit you best.
Contributed By: Aparna K S
Aparna has worked for Stock Holding Corporation of India Ltd (SHCIL). She has hands-on experience in various financial products. She also has expertise in various mutual funds, pension policies & other financial products. She is currently a freelance writer on various domains including finance
- Suman Das:Which child insurance policy will give high return for long term such as 20 years and also cover life?22-Jul-2013 11:06 PMReply