Child plan is no child's play

Published on Thu, Feb 02, 2012 at 16:15

Updated at Thu, Feb 02, 2012 at 16:52

Article from The Moneycontrol.com

Yashish Dahiya

Every little step your child takes, your smile becomes wider but slowly you become more aware of your responsibilities. While you always see how bright your child is you are always worried about how you will fulfill his future aspirations. Your kid might want to become a doctor, investment banker, musician or an astronaut the options are endless. But in the years to come, the fees of colleges or the investment needed to start a business or even wedding costs won't remain the same and you know even these costs already are so high.

Hence, as a parents you often try investing in child plans to ensure the future needs of your child are met, but without actually understanding them. It is important to build a regular saving element dedicated towards your child future planning and also protecting this saving capability by using insurance as a hedging instrument.

Child plans help in building a corpus for the child's future needs. They also help in securing the parents against the constraints such as inflation and rising cost of education. Once the policy matures, the payout can be interval based or a lump sum amount. The advantage of a child plan vis-�-vis other investments is the risk cover provided by these plans. The payout is assured to the child even if the policyholder is not around.

While comparing child plans there are some inputs that you must keep in mind:

a) Any insurance product can be pitched like a child plan. There are products in the market that have entry ages starting at 0, these are exclusive child plans and they are ones in which the customer can take a policy in his own life and pass on the proceeds to the child.

b) Defined Guarantees and time of payouts: One has to look at when does the policy gives out the payouts to customer. Are they defined explicitly or are they market/ investment linked . Although they are similar, you must consider your risk appetite.

c) Investment Yield/ Opportunities: Is the policy adopt a systematic transfer plan or a life stage based allocation of fund. Alternatively for a traditional plan are the returns gsec linked or returns are bonus related. Fund performance in case of ULIP becomes a large parameter while comparing between various plans.

d) Accidental Benefits: Inbuilt or as a rider , help protect against loss of income esp. due to disability of parent.

e) Family Income add-on benefit & Waiver Of Premium: Add-on or inbuild benefits like these, make sure contribution toways the saving element continue even if parent is not present or incapacitated to pay.

Overall child products play on the pitch that it is a forced savings for your child's future.