As a parent, it is your responsibility to protect and prioritize your child’s dreams and aspirations and one way to do this is to provide them with financial stability. While there are many financial instruments that can help you achieve the same such as mutual funds, and FDs, insurance plans have its own distinct advantages. Child saving plan have over the years become a popular alternative for parents, giving a safety net to your child in case of their absence and a means to build for your child’s future needs. However, certain myths and misconceptions sometimes stop people from buying child insurance plans. In this article, we will separate the reality from the myths so that the policyholder can make an informed decision and select the best savings plan for their child.
Myth #1: Child plans just provide life insurance for children.
Truth: This is a common misconception among parents. A child insurance plan is generally designed as life insurance for you, the parent, with benefits extended to your child. If you (the policyholder) pass away during the policy term while the policy is in effect, the insurance company will pay a lump sum payment. The sum assured amount can greatly benefit your child’s well-being and future aims. In case you find the premium of a child insurance plan a little too high for your budget, you can always buy another savings plan and choose the sum assured that you as a parent think will be enough to meet your child’s education, future aspirations and at the same can help your spouse sustain the daily living expenses.
Myth #2: The child receives money during the policy
Reality: While certain child savings plan may offer monthly payouts, the child normally receives the sum assured amount as a lump sum at the time of maturity, which often coincides with them reaching adulthood (18-25 years old). This lump money is useful if one needs to cover large expenses such as education, starting a business, or even a wedding.
Myth #3: Child plans are a sure-shot way to becoming rich
Reality: The returns on a child savings plan vary depending on the sort of plan you select.
Traditional plans: It provides assured profits. A portion of your premium is invested in low-risk, fixed-income securities such as government bonds. While these savings plans are reliable and secure, returns may be lower than other options.
Unit Linked Insurance Plans (ULIPs): It provides market-linked returns. A percentage of your premium is invested in market-related funds such as equities or bonds. ULIPs have the potential for higher returns than regular plans, but they are not guaranteed and vary depending on market performance.
Myth #4: Child plans are limited in scope
Reality: Child savings plans mostly are flexible and here’s how you can take advantage of that:
● Policy Term: Select a term that corresponds to your child’s future goals (such as college education).
● Premium Payment Options: Some child savings plans provide flexible premium payment options (monthly, quarterly, or annually) to accommodate your budget.
● Riders: Consider adding optional riders for additional benefits like critical illness coverage or premium waiver (premiums are waived if you become disabled to your savings plan.
Myth #5: Child plans are only meant for wealthy people
Reality: Child savings plan are designed to accommodate a wide range of budgets for parents. Here are some ways how anyone can make it accessible:
Start Early: Starting child insurance or choosing to buy a savings plan insurance plan early allows you to spread out your premium payments over a longer period of time, making them easier to handle.
Choose an Affordable Plan: Compare plans from several insurance firms to find one that fits your budget and provides the coverage you need.
Increase Premiums Gradually: Some plans let you gradually increase your premium as your financial status improves.
Myth #6: A child insurance plan doesn’t offer liquidity benefits.
Reality: A child savings plan is intended to provide financial security to both the parent and the child at various stages of the child’s life. As a result, there are options for the child to receive payments at regular intervals for various purposes, such as pursuing higher education abroad.
After the lock-in period has finished, partial withdrawals on a ULIP-based child plan are permitted, according to the policy’s terms. According to the plan’s terms and conditions, a child insurance plan in the form of a ULIP has moderate liquidity.
Benefits of Buying a Child Insurance Plan
While debunking myths, it’s crucial to understand the possible benefits of buying a child savings plan:
Financial Security for Your Child: During your absence, the plan provides your child with a financial safety net to fulfill their dreams and aspirations.
Allows you to be disciplined with your Savings and Investment: Making regular premium payments encourages disciplined savings and builds a nest egg for your child’s future.
Can help you fund your child’s Education: The maturity benefit can be an important financial resource for your child’s education, allowing them to achieve their academic ambitions without having to use the savings account.
Tax Benefits: Premiums paid for child insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act.
Making an informed decision.
Understanding how child insurance policies work allows you to make an informed decision about your child’s future. Here are some important considerations:
Assess Your Needs: Determine your child’s future financial goals and the amount you intend to save to fulfill them and according select the savings plan for them.
Compare Plans: Look at different plans and understand their features, benefits, and prices before you choose to buy a savings plan or a child savings plan.
Risk Tolerance: Select a standard child savings plan for guaranteed returns and lesser risk, or a ULIP for possibly higher returns with market-related risk.
Claim Settlement Ratio: Determine the insurance company’s claim settlement ratio to ensure a smooth claims process when necessary.
As stated by the myths debunked above, a child insurance plan may provide you with some peace of mind regarding your child’s financial future. Consult an insurance agent or a financial professional to ensure that you get a plan that is appropriate for you and your children.
