Making Your Biggest Investment

The journey of parenting is fulfilling only when a couple can plan and secure their child’s future. The smartest way of doing that is by buying a suitable child plan at a very young age. In fact, various life insurers offer several child policies with unique features tailor-made for you.

Imphal-based couple, Bijan Thokchom and Jibanlata Pukhrambam, bought a child plan on their daughter’s second birthday. Thokchom said, “We want to secure our daughter’s future education. Through insurance, we can do regular savings which will help us  build a corpus for our child’s future.”

After health, children’s education is a priority for every parent. It is difficult to suggest what your child will become in the future. However, it is important to take a stock of expenses that would be required for paying for the courses they would like to attend and accordingly, one needs to set aside a corpus. Rishi Mathur, Head, Product and Strategy, Canara HSBC Oriental Bank of Commerce Life Insurance, said, “A child plan is typically a financial goal for the child’s higher education. In today’s world, however, I would suggest parents to look beyond that and consider what would be needed for your child to get closer to  her dreams.”

An Early Start

Most parents are confused about when to start investing in a child plan. According to experts, at least a 15-year policy term is essential to cover your child’s educational expenses. “Ideally start when your child is very young, may be when she is starting to go to school, say when she is three-years old. This would provide a sufficiently long horizon (at least 14–15 years) before she starts going to college or 18–20 years before she joins a post-graduation course,” suggested Mathur. An early start ensures that the parents have enough time to save money and in turn, the fund gets compounded over this period. It is also advisable to allow significant equity exposure in the initial years, depending up on one’s risk appetite, but the exposure should be lowered when they are closer to the maturity.

Pointing out the importance of planning the educational expenses much in advance, Khalid Ahmad, Head Products, Punjab National Bank MetLife India, said, “The rate at which inflation happens in cost of education makes it imperative for parents to prepare well in advance.” At present, the cost of education in India is soaring. And, if inflation is not taken into account, a major chunk of your savings will go into the child’s education.

Inflation

For instance, if the cost of higher education in 2018 is `10 lakh and the parents are considering for their child’s education in next 15 years with 7.5 per cent rate of inflation, then they might have to save up to `30 lakh for the same course.

It clearly shows that the cost of higher education will triple in the next 15 years and the parents need to plan accordingly. If a couple wants to buy a child policy to cover their child’s higher education, it is important to keep the policy in force to get the benefit. Affordability to pay the premium matters and one should do proper financial planning.

Protecting Eventuality

No matter what, it is never okay to compromise on your child’s future. Mathur suggested, “One needs  to cover eventuality too, ensuring that the child’s future education  is not compromised in case of  loss of a parent.”

Pointing out the importance of child plan, Manik Nangia, Director (Marketing) and Chief Digital Officer, Max Life Insurance, urged, “Securing a child’s future is every parent’s top most priority. A child plan does exactly that. They have extra-layered protection to ensure financial planning for the future.” 

Most life insurers offer child plan with inbuilt life cover. In case of death of a parent, they provide triple benefit kick-offs, waiver of future premium, pay a lump sum amount to the nominee immediately after the death of a parent and also pay a pre-determined lump sum amount at the agreed milestone. Further, the nominee gets a monthly payment and on maturity, fund value or annual income is paid to the child.

Nangia assured, “A child plan should be taken keeping into account the child’s current age and the goal in mind, like higher education. This will help you determine when the funds will be needed for the child, and hence it will be easy to decide the ideal policy term. While taking a child plan, the amount of cover should be arrived at after factoring in inflation, and increased expenses in the future of the child’s life.”

On the other hand, for a professional study plan, it should at least be a 18 - 20 year policy term with the flexibility to withdraw in last five years or a regular payout of maturity benefit in installments in the last five years. Moreover, one should choose a fully guaranteed option, according to experts.

Depending upon the risk appetite, one can opt for market-linked plan, with a long-term horizon for a higher allocation to equity, which could offer better returns in the long-term to beat the high inflation rate of education costs. As one moves towards the education goal, one should keep a track how the goal is realised and move to lesser risky assets.

Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance, said, “Various child plans are available on equity as well as on debt platform. It is for oneself to evaluate one’s risk profile before committing to either of these asset classes.”

There are multiple things to consider before choosing what riders to select while buying the right child plan. Avoid the unnecessary riders and consider the ones, which will provide a waiver of premium benefit in case of critical illnesses or disability. These could help further in insuring the continuity of one’s contributions to the child’s plan  even in situations where policyholder has laid low by a dreaded disease or disability and income is reduced or disrupted.

In today’s hyper-competitive environment, bringing up a child is more expensive than ever before. Their expenses including school fees, extra-curricular activities, classes and coaching itself form a large portion of a parent’s monthly budget. “Higher education is becoming increasingly expensive each year with many institutes matching global fee structures even in India. It’s thus essential for a parent to choose an inflation-proof child plan,” affirmed Nangia.

Sometimes it is good to look from a different direction, said Anshuman Verma, Chief Marketing and Digital Officer, DHFL Pramerica Life Insurance, sharing his opinion on securing a child’s future. According to him, for a much lower premium, the parent can buy (assuming he is not very sick and thus uninsurable) a substantially higher cover with a pure-term plan. One can choose to have the nominee receive the death benefit in installments over a pre-determined period.

Further, Verma added, “Term-plan would ensure that the child’s education is taken care of even in policyholder’s absence. However, a term insurance provides no survival benefits, hence if one chooses the term insurance and survive the term, policyholder would have to fund the child’s education from her normal savings.

nirmala@outlookindia.com