IT will be Children’s Day soon, and it’s a good time to take stock of your financial planning for your children. Having safety nets—insurance products—will keep your family on the path to attainment of its goals whether or not you are around.
Life term insurance
This is a must-have product for anyone with children. A family can suffer financially if its bread-winner were to pass away early. Unlike an endowment plan or a ULIP, term insurance can help your dependents receive a benefit big enough for their long-term requirements.
Even a basic term cover may prove to be a wise option. Its low premium means that it frees up your savings to pursue investments vigorously, allowing you to reach your corpus requirements in quick time. In case of the insured’s demise, the insurance benefit provides long-term financial support while the monthly income takes care of short to medium term needs.
Child insurance plans are endowment plans and ULIPs that insure the parent’s life and provide a lump sum benefit on the parent’s demise. But unlike a normal insurance plan, a child plan continues after the insured’s death. Its future premiums are waived off and the insurer invests this amount for maturity at set dates in order to fund the child’s requirements such as higher education.
Such plans are best for those able to pay a big premium and who are happy with 6-7% annual returns, unless the plan is linked to the equity market which can give higher returns. However, the lump sum benefit may not be adequate to cover long-term needs of the family. This would compare unfavourably with the alternative, which would be to buy a cheap term plan and invest the savings in options such as PPF or mutual funds that will offer returns upwards of 8% annually.
Health insurance is a must whether you have a child or are planning to have one. Increasingly, women are conceiving at a later age. This may bring health complications, some of which may be covered under health insurance. Some health plans also cover maternity expenses after a waiting period, and this may appeal to couples who want to delay having a child.
Some family floater plans cover your whole family, and can automatically include your newborn. A typical family floater plan for R500,000 for a couple and one child may be availed at annual premiums in the range of R12,000. As and when your income allows, you must upgrade the cover to a bigger amount to adjust for increasing medical costs.
The writer is CEO, BankBazaar.com