What more joyous occasion can there be for a couple than the arrival of their child? Parents, naturally excited about the addition to their family, start planning every little detail of the future that would involve their little one. From planning for the family’s long-term comforts to the managing the baby’s day-to-day care, parents have their hands full.
In any kind of planning for the child’s future, it would be wise to include money matters as well. With growing financial awareness, many parents today prioritise financial planning to ensure that their child grows up to get the best of everything.
Here, we will discuss how to plan a secure financial future for your child from the moment they are born, and why this should be a goal for every parent.
Revisit your life cover
As a parent, your responsibilities increase manifold with the arrival of your child. Your child is directly dependent on you. You will have to pay for their sustenance, education, health care, and lifestyle. As the family’s breadwinner, you have dependents whose finances you need to secure.
If anything were to happen to you, your life insurance cover should be sufficient to cover all expenses of your child till they become financially independent. If you hold an insurance policy, the birth of your child is a good occasion to revisit your coverage amount and to assess if it’s going to be enough in your absence. If you still haven’t taken life insurance, opt for one immediately. As a person with dependents, you should consider getting a term insurance plan which provides a large cover for a small premium. If you’re a 30-year-old salaried male, you can get a cover for Rs. 1 crore for an annual premium around Rs. 8,000.
Include your child in your health cover
Your family has grown – and so must the ambit of your health insurance. It must be amended to include your child. Doesn’t matter if it’s a personal health cover, or an employer-provided medi-claim plan, or a family floater cover, you must take the necessary steps to provide health insurance to your child immediately.
There are many health insurance companies that would cover your newborn without any extra premium if they have covered for maternity costs. Some health plans also cover the first year vaccination costs when you include the child as part of your health cover.
Start planning for your child’s future expenses
Trends in education costs are inflationary. A two-year program that cost Rs 5 lakh only 10 years ago may cost Rs. 25 lakh today. It’s hard to say what it would cost another 10 years from now. But as a parent, it’s your responsibility to start preparing for your child’s education expenses the moment they’re born. It is absolutely important to start building your fund early and reap the benefits of compounding growth and reduced risks in the long term.
Here are some tips you can use to start planning for your child’s future expenses.
Open a savings bank account: Start a savings account for your child. Not only can you start saving from your own income, you can also direct in it all the cash gifts received by your child. This would provide you a basis to start investing in your child’s name.
Invest in recurring deposits or long-term fixed deposits for your child: Long-term deposits are a great, safe way to start building a corpus for your child’s future requirements. With a fixed rate of interest, you can plan and build a desired corpus for your child. For example, if you plan to save Rs. 20 lakh for your child’s higher education, you will need to put a monthly sum of Rs. 4200 into a deposit or fund growing at 8% per annum for 18 years to reach your target. Once you have a target, you can work backwards, divide your goal into easy monthly payments, and pick an investment tool that would help you achieve the goal the fastest with the least risk. Make sure you factor in inflation into your planning.
Seek investment in child plans: Sometimes, it is a good idea to invest in child plans within 90 days of your child’s birth to make the best use of the plan’s financial benefits. Starting early allows you to opt for unit linked child plans and then slowly de-risk the policy to safer funds before maturity. Adopting a strategy of having flexibility between short, medium, and long-term funds can benefit you from timing the market without compromising on your child’s insurance portfolio.
Snapshot of children investment options to consider
Savings bank accounts, PPF, long term FDs, RDs, child plans, equity funds
Tenure: 15-20 years
The author is CEO, BankBazaar.com