As a parent, you must prioritize your child’s dreams and aspirations. Planning for their future entails not just love and direction, but also providing financial stability to them. Child insurance plans have over the years become a popular alternative for parents, giving a safety net 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.
Child plans 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 objectives. In case you find the premium of a child insurance plan a little too high for your budget, you can always buy term insurance 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.
The child receives money during the policy
Reality: While certain child insurance plans may offer monthly payouts, the child normally receives the accrued amount as a lump sum at policy maturity, which often coincides with them reaching adulthood (18-25 years old). This lump money can be quite useful for large expenses such as education, starting a business, or even a wedding.
Child plans are a sure-shot way to becoming rich
Reality: The returns on a child insurance plan vary depending on the sort of plan you select.
Traditional plans: It provides assured profits. A portion of your premium is placed in low-risk, fixed-income securities such as government bonds. While 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.
Child plans are limited in scope
Reality: Many child insurance plans are flexible. 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 insurance 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).
Child plans are only meant for wealthy people
Reality: Child plans are designed to accommodate a wide range of budgets. Here are some ways how anyone can make it accessible:
Start Early: Starting a child insurance or choosing to buy term insurance 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.
A child insurance plan doesn’t offer liquidity benefits.
Reality: A child insurance 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 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 resource for your child’s education, allowing them to achieve their academic ambitions without having to use the savings.
Tax Benefits: Premiums paid for child insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act (subject to applicable tax restrictions).
Making an informed decision.
Understanding the reality of child insurance policies 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.
Compare Plans: Look at different plans and comprehend their features, benefits, and associated prices before you choose to buy term insurance or child insurance plans.
Risk Tolerance: Select a standard 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 enable a smooth claims process when necessary.
As evidenced 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.
